ARCHIVED - Transcript, Hearing 2 June 2010
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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO-TELEVISION AND
Proceeding to consider the appropriateness of mandating certain wholesale high-speed access services
140 Promenade du Portage
June 2, 2010
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Canadian Radio-television and
Proceeding to consider the appropriateness of mandating certain wholesale high-speed access services
Konrad von Finckenstein Chairperson
Len Katz Commissioner
Michel Arpin Commissioner
Timothy Denton Commissioner
Elizabeth Duncan Commissioner
Candice Molnar Commissioner
Marc Patrone Commissioner
Stephen Simpson Commissioner
Lynda Roy Secretary
Alistair Stewart Legal Counsel
Tom Vilmansen Hearing Coordinator
140 Promenade du Portage
June 2, 2010
- iv -
TABLE OF CONTENTS
PAGE / PARA
MTS Allstream Inc. 614 / 3595
Cogeco Cable Inc.; Quebecor Media Inc., on behalf of Vidéotron ltée; Rogers Communications Inc.; Shaw Communications Inc.; Bragg Communications Inc. 693 / 4039
Distributel Communications Limited 828 / 4817
Cybersurf Corp. 848 / 4934
- v -
--- Upon commencing on Wednesday, June 2, 2010 at 0902
3589 THE SECRETARY: Order, please. À l'ordre, s'il vous plait.
3590 THE CHAIRPERSON: Good morning.
3591 Bonjour. Commençons, Madame la Secrétaire.
3592 THE SECRETARY: Merci, Monsieur le Président. Good morning all.
3593 We will now proceed with the presentation by MTS Allstream Inc.
3594 Appearing for MTS Allstream Inc. is Teresa Griffin-Muir. Please introduce your colleagues and you will then have 25 minutes to make your presentation.
3595 MS GRIFFIN-MUIR: Thank you. Good morning, Mr. Chairman, Commissioners.
3596 With me on the panel today, to my right is Mr. Paul Frizado, who is the Chief Technology and Information Officer at MTS Allstream; on my left is Chris Peirce, our Chief Corporate Officer; and next to Chris is Mr. Dean Prevost, the President of our national operations which offers business services to customers across Canada using the Allstream brand.
3597 We appreciate the opportunity to appear before you and we are very pleased that the Commission ranking rises the key role that the business marketplace in delivering the competitiveness, productivity growth and investment, outcomes that the Commission and the government are seeking.
3598 The government recognizes the fundamental role of broadband infrastructure and services in ensuring Canada is poised to be a leader in the 21st century global economy. Lacking competitiveness, particularly for small and medium-sized businesses, has manifested itself markedly in lower ICT adoption rates and this in turn has contributed to Canada's declining productivity.
3599 The government realizes that a leading edge communications infrastructure is fundamental to accelerating Canada's productivity growth. Your decision with respect to wholesale access for underlying broadband services, particularly those inputs necessary to drive greater choice and innovation in the business market, will either accelerate Canada on its path to growth and global leadership or delay yet again the vigorous competition necessary to stimulate investment, innovation and ICT adoption by Canadian businesses.
3600 The Commission has already found that an ADSL access service should be mandated and priced as conditional essential. You have also found that aggregated ADSL should be provided to competitors at matching speeds. Both of these determinations support competition in the Canadian telecommunications market and should be retained. A properly configured ADSL access service, one that gives competitors affordable access to state-of-the-art technology will have a positive effect on investment and customer choice.
3601 MR. PEIRCE: Mr. Chair, Commissioners, the broadening of this proceeding by the Commission and Governor in Council has focused the spotlight on one of the most important issues facing telecommunications in Canada today: What are the real drivers of investment in broadband infrastructure?
3602 Canada is not alone in seeking to answer this question. Countries around the world are developing or have begun to implement digital plans, and regulatory frameworks in recognition that broadband is a critical economic and social enabler.
3603 Canada is a little behind many of its peers in this regard. There is no argument that Canada's productivity performance in both the manufacturing and business sectors has declined significantly over the last two decades.
3604 The gap between Canada and the U.S. is widening at an alarming rate. Where our productivity was between 80 to 90 percent that of the U.S. at the end of the last century we are now down to only 65 to 70 percent, with no sign of this downward trend abating. There is also no argument that Canadian businesses, particularly small and medium-sized businesses, drive Canadian productivity growth.
3605 Not coincidentally as far as telecommunications services are concerned, this market is afforded far less choice in terms of innovation and priced in the residential market. This fact manifests itself not only through higher prices, lower speeds and less innovation in the sector, but also in the extent of ICT investment by Canadian businesses. Although we lag the U.S. in these measures, the U.S. itself is lagging many other countries, countries which have adopted more open access regimes as FCC Chairman, Julius Genachowski, recently acknowledged.
3606 While perhaps not the entire answer, the lack of advanced and innovative broadband services, applications and devices for businesses, certainly contributes to our lagging productivity performance.
3607 Canada is losing ground in the international race for affordable, high-capacity connectivity. For small businesses in particular, Canada's penetration is low relative to other countries. Unsurprisingly, this development tracks the decline in competitive alternatives here at home.
3608 International evidence repeatedly shows that the greatest driver of investment is competition in all its forms. Competition forces incumbent and competitors to increase their efficiency and to innovate.
3609 Numerous examples from Europe and elsewhere as cited in our evidence in this proceeding have shown that an open access model reaps benefits in the form of greater competition, higher speeds and lower prices. Canada is not where it should be or where it needs to be to maintain our global competitiveness. Clearly Canada should be aspiring to regain the leadership position it held as recently as 2003.
3610 Intermodal competition between cable and telephone companies is taking hold in the residential market. The two former monopoly networks, built for two separate purposes, have converged, allowing entry of each into the other's incumbent work. This phenomenon is the motivating force for the continued investment by both incumbents and network infrastructure to serve the residential market.
3611 MTS Allstream has invested, and continues to invest in its network infrastructure to enable us to compete vigorously with Shaw in Manitoba. As you know, we invested in broadband well in advance of many of our peers to launch our TV service in 2003 and with the entry of Shaw into the voice telephony market hastened our own rollout of IPTV. We are now investing in fibre to the home.
3612 In the business market where MTS Allstream competes nationally against local incumbents, including Bell and TELUS, there is currently less competition and hence investment than in the residential market. In large measure there is only a single ubiquitous network serving business customers, the incumbent telephone company network.
3613 Furthermore, because the wholesale framework has not extended to critical broadband inputs, the incumbent, as the lone network access provider, has little incentive to invest or to share. The wholesale framework is an essential piece of the puzzle for competition, innovation and investment in telecommunications infrastructure to serve businesses because here, unlike the residential market, there is no possibility for dual monopoly networks to converge.
3614 Indeed, apart from MTS Allstream no ILEC is currently making any significant investments in out of territory network infrastructure. Bell itself has conceded to financial analysts that it is not putting a lot of capital into its out of territory operations, while TELUS has characterized the same business space as "unattractive".
3615 Competition and investment have a symbiotic relationship. We need only look at the Canadian wireless market. In anticipation of new entry the incumbent wireless providers have not only dropped their prices, introduced new brands and offered new services, but they have also made significant investments in upgrading their networks, including the joint expenditure by Bell and TELUS of over $1 billion to convert their networks to HSPA.
3616 It is not that difficult to connect the dots in the business market. The incumbents have received retail forbearance in these markets because of the presence of a competitor who has access to legacy incumbent inputs. There will be no end-to-end intermodal competition in either retail or wholesale markets.
3617 Therefore, Bell and TELUS are retrenching to their territories while choice and services to business customers, especially small and medium-sized customers, are declining in a real sense, all because broadband access is an enduring bottleneck that the wholesale framework has failed to vigorously address. As Dean will explain further, mandated access is a prerequisite for continued investment on our part.
3619 MR. PREVOST: As Chris has pointed out it's the business market where the Canadian economy really needs the investment. Over and over again we have heard concerns about the lagging productivity, slow ICT uptake and lack of competitiveness of the Canadian business sector.
3620 Telecommunications is a key input for Canadian business and we should be offering businesses of all sizes the tools and technologies they need to compete in a global market.
3621 At MTS Allstream we strive to deliver innovative applications and services to Canadian businesses, in part because if we do not we will not win customers. This is the reality of being a competitor rather than an incumbent.
3622 In fact, it is the investment made by competitors like us that drives investment in new technology by the incumbents. The more innovative we are, the more the ILEC has to invest in innovation simply to meet increasing demands of customers. That is the beauty of competition.
3623 So when we talk about investment, it's not just the investment made by ILECs that should be considered, but the investment made by competitors as well. Competitor investment is a risky proposition, made even more so by the uncertainty created by the current wholesale framework and the time that it takes to resolve access issues.
3624 MTS Allstream is one of the few competitors making consistent and significant investments in business markets across Canada. Unfortunately, even though we have already invested billions and continue to make substantial investment in network infrastructure, we are able to serve only about 30 percent of our existing customers using our own network alone.
3625 The reality is that competitors can only offer genuine choice if they have cost-effective access to existing incumbent networks. Unlike the ILECs, our initial investment in infrastructure does not come with a monopoly base and often the customer will not generate revenues sufficient to cover the cost of constructing new facilities.
3626 If, through mandated wholesale access, competitors can lease the connectivity required to serve certain locations, the customers' requirements will be fulfilled and the competitor will have revenues to justify continued investment in expansion of its own network.
3627 Our willingness to take risks and invest has brought great benefits to the Canadian business. We had the first -- I repeat, the first -- IP-enabled national network backbone of any provider well before Bell or TELUS. We had the first IP trunking solution three years before Bell introduced it and we intend to keep bringing innovation to Canadian businesses through continued investment.
3628 This spring our board agreed to extend our fibre build to 30 percent more commercial buildings across the country increasing the numbers served to nearly 3,000 in total. Upon completion we believe this could improve our on net capability to about 35 percent of our customer base.
3629 But right now the incumbent can, within the rules, block our access to many customers. Indeed this is quite rational behaviour on their part.
3630 The risk we are taking to bring competition to Canadian business should give the Commission the impetus to mandate wholesale broadband access to a workable ADSL solution in this case and to offer broadband facilities and services as quickly as possible thereafter.
3631 Bell and TELUS have done their best to confuse the issue of risk and return by dealing with investment and annual capital expenditures on a broad-brush basis, ignoring the difference between fibre to the node and full-scale replacement of the residential access infrastructure network through investments like fibre to the home.
3632 Clearly, midway through this last decade the competitive dynamics of the residential market began to change with the fulsome entry of cablecos into the voice telephony market, which I would note we helped at least four of them do that. As Chris will tell you, we face a vigorous triple and, frankly, soon-to-be quadruple play competitor in the form of Shaw in Manitoba.
3633 Also clear, though, is the fact that the dynamics of the business market are frankly unchanged. The type of network convergence experienced in the residential market will not occur in the business market since today there is only one regional ubiquitous network for business and that is the incumbent telephony network.
3634 Therefore, in the business market, today and into the future, the vast majority of competitors serve their customers using a combination of network inputs they both own and lease from the ILECs. In the access of mandated wholesale access there will be little if any competition in many business markets which will actually slow the pace of investment and innovation since the ILECs can afford to be complacent when not spurred on by competition.
3635 It should also be noted that the relative risk of broadband infrastructure investment in the business market is less than the residential market since 100 percent of the revenues associated with this investment is rarely, if ever, lost to a competing network. In fact, if the ILEC loses a retail business customer it rarely loses that customer for all of its services and, moreover, for those services that an ILEC does lose, it continues to recover its costs through wholesale revenues since these services will likely remain on their own network.
3636 These realities demonstrate that the specific market conditions matter a tremendous amount. Therefore in establishing the principles applicable to next generation networks, the Commission must maintain a technologically neutral approach that is capable of taking these conditions into account.
3637 MR. PEIRCE: As with all things, the business case and inherent risk for investment really depends on where you sit. I would like to elaborate on the vastly different competitive and investment realities of the residential and business markets that Dean has just highlighted.
3638 You may recall that when we appeared before you in the essential services proceeding, we explained how the investment decisions and the risks associated with these investments differ dramatically between incumbents and competitors. We described the fact that in general an incumbent has the advantage of augmenting an existing ubiquitous network rather than investing in an entirely new and riskier network overbuild.
3639 From an incumbent perspective it has never been a question of whether to serve or not to serve a particular residence or business and as technology evolves this certainly remains true in the business market. As well in this context, it is important to distinguish between investment in broadband delivered over copper using DSL and matching speeds for DSL delivery, where in the residential and business markets we are still speaking about network augmentation; not entirely new investment, and investment in fibre to the home in the residential market.
3640 The intermodal competition in the residential market has bearing on not only the pace of investment but the degree of riskiness of certain investment. To a great extent in the residential market we no longer have the luxury of simply incrementally investing to expand the scale and scope of our overall network and service offerings.
3641 In our home market we compete against an aggressive cable incumbent, Shaw, who has an equally ubiquitous network in the residential market in Winnipeg and other parts of Manitoba. The major investments required to upgrade our incumbent network for very high-speed internet service and IPTV are, in our view, completely necessary.
3642 Competition is not only driving the need for us to upgrade our network to meet the ever-increasing speed and capacity demands associated with a myriad of voice, internet and TV services and applications, it is also driving the adoption rate of new network infrastructure technology.
3643 Indeed, it has been the impetus and enabler for us to begin to deploy fibre to the home in certain communities. I am not only talking about new subdivisions but communities like Selkirk where we currently have, and therefore must replace, copper infrastructure. As Dean explained, unlike incumbent investment in the business market, our investment in fibre to the home is an inherently risky investment.
3644 First, the investment in the customer access portion of the residential or feeder network is entirely new, leaving stranded existing infrastructure.
3645 Second, we are undertaking this investment at a time when as a result of competition there is significant risk of customer and therefore total revenue loss.
3646 Third, it places a toll on our share price as we push what would otherwise be free cash flow into necessary investments in new access infrastructure. Investors are quite justifiably looking for a return on investment that compensates for the increased risk. These factors change the risk profile of investment in the residential market and, to some extent at least, should change how the wholesale framework should compensate the ILEC.
3647 For example, a greater cost of capital is justified for these investments and the risk of losing the customer's business entirely to a competitor likely justifies a lower demand assumption in calculating the relevant costs. But that is likely a discussion for another day.
3648 Paul Frizado will now speak to our proposal on the ADSL-CO service originally at issue in this proceeding.
3649 MR. FRIZADO: In the essential services decision the Commission recognized the need for an unbundled wholesale ADSL access service. In this proceeding we propose such a service, one that is based on the way we provide ADSL access on a retail basis to our high-speed internet customers in Manitoba. This is the same way that the ILEC provides these services to their own retail customers as well.
3650 In Manitoba, we aggregate all Internet traffic to one of nine locations within the province. We are proposing that competitive ISPs be able to interconnect with our network at each of these broadband access server locations. This is not quite as efficient as our existing wholesale aggregated ADSL data access service, ADAS, which only requires one point of interconnection per ISP to reach each and customer throughout the entire province. However, it has the advantage of allowing competitive ISPs to provide their own inter-provincial transport if they choose to do so and/or to operate it on a regional basis only without having to pay for capacity throughout Manitoba. Allowing interconnection at regional designated broadband access server locations in other provinces would provide the same advantages to competitor ISPs in those locations.
3651 It is clear from the record of this proceeding that in order to achieve the objective of the government, and indeed to be at all meaningful, wholesale or essential framework cannot simply involve a broad and somewhat arbitrary and continually evolving distinction between services that are described as legacy on one hand and next generation on the other.
3652 The framework must reflect the incumbent networks are evolving and whether the underlying facility or service at issue is truly a consequence of the natural evolution in network provisioning or a break with the past provisioning practices and technology.
3653 In the essential services decision the Commission correctly determined that there was a need for an ADSL access service that would enable competitors to offer retail high-speed internet access service to all the competitors that an ILEC can reach, including those served by fibre-fed remotes. This had been a long-standing issue.
3654 Now Bell has made two increasingly impractical proposals. The first would only give competitors access to a wholesale ADSL service delivered using copper facilities and outdated ADSL technology based on ATM. This of course will restrict competitors to underlying facilities that have been or are in the process of being replaced by more advanced IP-based technologies.
3655 The second, which we will address in our rebuttal, disingenuously assumes all competitors can duplicate all fibre facilities in the incumbent's network. Restricting competitors to copper/ATM legacy facilities in which first-generation ADSL high-speed internet access services were based, as Bell suggests, will restrict competitors from access technologies that offer better performance at a better price.
3656 This will prevent competitors from competing effectively in the retail market. In order to be meaningful, the wholesale solution has to be compatible with the way that the network architecture is evolving, which is towards aggregated IP-based solutions. It makes more sense for the Commission to recognize this and ensure that the framework encourages investments in new, more efficient technology, rather than putting limits on competition and forcing incumbents can competitors to invest in old rearward looking technology. This cannot be good for Canada's productivity.
3657 The Commission has asked how many types of internet access infrastructure should be defined, and I would like to reinforce what Dean said about the need to apply technologically neutral analysis. Whether we are talking about ADSL, DOCSIS or even fibre, the principles that govern such access should be the same as were laid out in the essential services decision. The facts on the ground will change, market conditions will change and technologies will change so the Commission will need to reassess its decisions periodically.
3658 But the fact that the networks are evolving should not become a rationale for denying competitors access to more efficient network architectures. We do not believe that providing matching speeds, whether on a wholesale aggregated ADSL access service or on an unbundled ADSL access service will unduly diminish incentives to invest in new network infrastructure.
3659 MTS Allstream, like all incumbents invest primarily to maintain its network infrastructure to be able to meet or beat competitors' offerings and/or to take inventive new revenue-generating opportunities. This applies regardless of market size.
3660 Nor do we believe that wholesale requirement unduly impair the ability of incumbent telephone companies to offer new converged services such as IPTV, as long as such requirements are based on access configurations that the incumbents provide to its own retail customers.
3661 A matching speed requirement would, by definition, not require an incumbent to provide a speed that does not offer its own retail internet access customers.
3662 MS GRIFFIN-MUIR: MTS Allstream believes that there would not be competition sufficient to protect the interest of users, especially in the business market. In the absence of mandated wholesale requirement, even if the Commission is of the view that competition between the telephone and cable incumbents is sufficient in the residential market, you cannot possibly reach the same conclusion in respect of the business market where there is no widespread competitor to the ILEC that duplicates its network.
3663 The wholesale obligations of both incumbent providers should be equitable and effective to sustain competition. These goals can be met by a framework which ensures that the wholesale obligations placed on both the telcos and the cablecos reflect the architectures used to serve their own retail customers, including the natural evolution towards more aggregated solutions rather than forcing incumbents to create a strict CO-based or head-end-based service. In addition, both incumbents should offer their competitors access to their facilities at the same speeds they offer themselves.
3664 We have made it clear that we believe that the narrow ADSL-CO solution is backward and cumbersome and, as Paul explained, we don't think the Commission should become engaged in a complex exercise of defining new types of internet access infrastructure to which it will or will not mandate access.
3665 Rather, you should focus on applying the principles of the essential services decision to new wholesale services as they arise, keeping in mind the vital role that competition plays in furthering innovation and adoption of new services and technologies.
3666 Application of these essential services principles takes it clear that wholesale broadband services are particularly vital in the business market where, unlike the residential market, there is no prospect for intermodal competition. In light of this, only the mandating of matching speeds for aggregated ADSL access services will ensure that competition can urged in Canada.
3667 Under no circumstances should the Commission permit the creation of a first-class state-of-the-art network for ILEC use and a second-class legacy network for competitive use. This would be contrary to the core principle underlying common carrier status that carriers provide access to their networks to others on the same basis that they provide it to themselves and it would relegate competition and all of its benefits to the dust heap.
3668 The Commission's decision in this proceeding will mark a critical moment for Canadian telecommunications industry and the ramifications of your determinations will be wide spread in the industry and the economy as a whole.
3669 Application of the essential services framework, the policy objectives of the Act, the policy direction all call for a forward looking approach to regulation that supports competition, investment and customer choice.
3670 The benefits will accrue, not just to consumers, but to Canadian businesses, the crucial drivers of Canadian productivity and economic wealth.
3671 With the right framework, Canada can and should re-assert its global leadership position in the broadband world.
3672 Thank you.
3673 THE CHAIRPERSON: Thank you for your presentation.
3674 Mr. Frizado, let's turn to page 14, top paragraph where you are talking about IPTV.
3675 You have a wonderful IPTV system. I came to Winnipeg, you showed it to me, I was quite impressed by it.
3676 Now, we have heard over the last two days that the ILECs want to offer their own IPTV and if we mandate broadband access it would impair the IPTV.
3677 And yesterday we heard from some of the smaller third party providers that know there are technical solutions.
3678 First of all, are there technical solutions; secondly, could you and would you be willing to resell or lease broadband access to your competitors without interfering with your IPTV offering?
3679 MR. FRIZADO: So, Mr. Chairman, let me answer the first question.
3680 THE CHAIRPERSON: Yes.
3681 MR. FRIZADO: The current architecture as probably most have described with IPTV does run to what we call a single device that has a single IP address delivering that converged service.
3682 That is a difficult thing to split itself.
3683 What we have proposed is actually to provide a second copper loop and provide equivalent on a separate modem in the same way that we do it today for ADSL and we would provide that at equivalent speeds that we provide for Internet access.
3684 And that would be our solution as we proposed.
3685 THE CHAIRPERSON: When you say at equivalent speeds, to which you yourself, MTS Allstream provide?
3686 MR. FRIZADO: Yes, equivalent Internet speeds that we provide.
3687 THE CHAIRPERSON: And what do you provide right now?
3688 MR. FRIZADO: It varies depending on the technology and the coverage areas. So, it could range from seven Meg all the way up to about 30 Meg.
3689 THE CHAIRPERSON: Okay. And is that the only way to do it, you actually have to provide the interdepartmental access on a separate copper loop; is what you are telling me?
3690 MR. FRIZADO: Yes. Currently the device, the residential gateway only supports one IP address and it becomes very complicated to manage, you know, two services that are really converged in one. And the easiest way to do it is to provide a separate loop, which is exactly what's done today for ADSL.
3691 THE CHAIRPERSON: Yes. But if, for argument sake, TekSavvy comes to you and wants to lease access from you, you will be able to provide it to them in downtown Winnipeg, not just sending it to have an IPTV offering there?
3692 MR. FRIZADO: We would provide it on the separate loop for them.
3693 THE CHAIRPERSON: And secondly, on that same sheet, Ms Griffin-Muir, you are talking about the business market and you say:
"Even if the Commission is of the view that competition between the telephone and cable incumbents is sufficient in the residential market, you cannot possibly reach this same conclusion in respect of the business market..."
3694 THE CHAIRPERSON: So, are you suggesting that we have a separate rule for business markets and for residential markets?
3695 MS GRIFFIN-MUIR: No, we're not necessarily suggesting that, but what we are suggesting is that if you do a market analysis based on the principles in the essential services decision, so you take the three --
3696 THE CHAIRPERSON: Right.
3697 MS GRIFFIN-MUIR: -- requirements and you examine residential competition and whether or not it's sufficient to meet the interests of end users and whether or not the networks duplicable, which you actually did do and reached another conclusion.
3698 So, what we're saying is if -- because most of the discussion in this proceeding, in fact I would say except for questions from you, pretty well everybody has presented, every incumbent, talking about competition in the residential market.
3699 THE CHAIRPERSON: But let's say, for argument sake, I agree with you. I read this paragraph, it says, yes, you're right; does that not automatically drive me to treating both business and residential the same and saying where there's a problem in residential, so in order to cure the residential problem I impose a rule that applies to both?
3700 Would I not have a rule for business and another one for residential?
3701 MS GRIFFIN-MUIR: Well, no, actually I don't think that. First, there are a number of services not obviously all at issue in this proceeding, but even ADSL service, if you look at Bell's tariff they actually make a distinction in the wholesale tariff between residential and business and then there's CDN ethernet access, et cetera, that are truly business services.
3702 So, there's no particular reason why when you're looking at a relevant market that you would decide, well, since there is Telco cable competition for residential consumers, automatically anybody offering a competing service for business shouldn't have access to the underlying wholesale facilities and services.
3703 THE CHAIRPERSON: That is not what I asked, I did exactly the opposite. I said exactly opposite.
3704 Because there is a problem in the business market --
3705 MS GRIFFIN-MUIR: Oh, I'm sorry.
3706 THE CHAIRPERSON: -- I am going to impose something also on the residential where it is not needed in order to cure the problem in the business market.
3707 Is that what you are advocating?
3708 MS GRIFFIN-MUIR: No, no, I'm not advocating that either. I mean, my answer works --
3709 THE CHAIRPERSON: Then what are you advocating? Tell me precisely what would you --
3710 MS GRIFFIN-MUIR: Well, what we're advocating --
3711 THE CHAIRPERSON: If you were sitting here, what would you do?
3712 MS GRIFFIN-MUIR: If I were sitting there, what would I do?
3713 THE CHAIRPERSON: Yes.
3714 MS GRIFFIN-MUIR: Actually, what I would do if I were sitting there was mandate wholesale access for residential and business, not because I think there's a problem in business so you should do it residential, just because of the evidence put before you.
3715 I do think what I would do, if I were you --
3716 THE CHAIRPERSON: Yes.
3717 MS GRIFFIN-MUIR: -- is perhaps examine the pricing and the application of wholesale for residential in terms of the risk that's obviously present in the residential market for the incumbents, because with intermodal competition when you lose a customer, you lose the customer completely from your network.
3718 So, some aspects of your pricing models would have to be re-visited, some of the assumptions, particularly with respect to demand and the cost of capital.
3719 THE CHAIRPERSON: Thank you. Steve, I believe you have a series of questions.
3720 COMMISSIONER SIMPSON: Thank you very much.
3721 Good morning. Thank you very much for appearing.
3722 Mr. Peirce, I'm going to ask some telecom questions as my colleague before, get into the wholesale side of things.
3723 In your written submissions to the Commission you had taken a rather contrarian view to investment in fibre to the node, indicating that regardless of the implications of a mandated access ruling by the Commission that MTS would continue its capital expenditures into FTTN.
3724 Now, I'm wondering, I'm not trying to be cute and imply that this is a posturing exercise but, you know, what is the economic grounds for that kind of assertion?
3725 MR. PEIRCE: Commissioner Simpson, just to add one footnote to Ms Muir's comments to the Chair, I think that she intended to indicate, Mr. Chairman, if you didn't hear it, that we do think though that the Commission would be able to deal with the business market differently from the residential market in terms of its wholesale regime, and one of the differences is the pricing methodology, the costing methodology that Ms Griffin-Muir referred to.
3726 But with different competitive circumstances in both residential and business market, that it is open to you to presumably, it may well be in another proceeding, but it's open to you to deal with those markets differently.
3727 THE CHAIRPERSON: So, you are clarifying her answer now?
3728 MR. PEIRCE: Yes.
3729 THE CHAIRPERSON: I mean, you are saying it is the same principle, different costing for residential than business?
3730 MR. PEIRCE: That's one difference. And then as she indicates, there's also other services that just naturally are used in a business setting and not in a residential setting and then there's also, you know, the definition of markets and there are certainly broadband services or wholesale services that we get today that have some usage attached to them in order to qualify for how the competitor is using them, like CDN.
3731 THE CHAIRPERSON: Okay.
3732 MR. PEIRCE: In terms of, Commissioner, fibre to the node or the remote as it's more generally been called, which is simply to point out, this is not new, this has been going on in incumbent network infrastructure since certainly the 90s, certainly the mid-90s, some would say since the late 80s.
3733 And so a lot -- that investment has all been incremental. And so, since it's incremental, it's done across -- with the economies of scale that are associated with, you know, the market share that you hold over that network.
3734 And our former President, John MacDonald, who we would politely call a propeller head, would make reference to, you know, network externalities and all that that does for you with all of the customers you have on that network.
3735 And so, you know, it's really been the monopoly legacy and the ratepayers across that space that have really generated the funds necessary to enable that investment.
3736 And that's just -- there's a difference now, there's a difference now in terms of the competitive dynamic when you think of fibre to the home because with fibre to the node there is really -- there was no risk for a good portion of that time that an incumbent was going to lose its customer and, if there was, it had a regulated rate of return regime that was reimbursing it.
3737 And so, the difference now is it's competitive and fibre to the home means you're no longer just augmenting, you are replacing in terms of that last access piece.
3738 MS GRIFFIN-MUIR: But actually only in terms of that last access piece. I think Paul could give you a description of how the investment was made.
3739 MR. FRIZADO: So as Mr. Peirce indicated, these things actually happen in various sections and the distribution has typically been fed with fibre for a number of years as we've gotten closer and closer, just the price of copper and replacing copper and getting higher bandwidth capabilities.
3740 From that point, which is what most of us would call fibre to the node, has all been fibre fed back. The last section from the node to the actual house, or the prem, is the last mile that people will refer to as fibre to the prem or fibre to the home, and it is that last investment that will be driven by a number of economics, obviously offering higher speed accesses for TV and Internet, as well as eventually the plant itself will age and it's a matter of replacing it with copper plant or fibre plant.
3741 And those decisions will come into play and usually two or three of them have to occur at once to really make that drive to do fibre to the home.
3742 COMMISSIONER SIMPSON: Thank you.
3743 I would like to go to the 80,000 foot level and take full advantage of the uniqueness of your organization in that, I used the analogy yesterday of railroad networks and spur lines, but I sense that I'm talking to two railroads here; one is wholesale and one more on the conventional ILEC side of things.
3744 So, if you can indulge me, please, I want to talk about the emphasis you're placing on the strategic importance of continuing to build the network.
3745 You know, you've said very clearly I think that the golden mile, you know, the CO to the nodes, the CO to the home evolution with fibre is not revolutionary but just evolutionary in a network sense and that mandating of access to this continuation of existing network is important to the strategic interests of the country as well as the telecommunications business.
3746 So, from the duopoly or the dual lens that you share in running your businesses, do you feel that -- going to your Towerhouse Consulting contribution to the written submissions, you were alluding to the fact that, you know, organizations like Ofcom in the United Kingdom have come to a determination -- come to an understanding of the relative strategic importance of the wholesale network.
3747 And the first question I've got for you is, should the wholesale build-out access taken into full account in this to the ILECs, should the wholesale side of the network, going back a little bit to Commissioner von Finckenstein's question, be regarded differently than retail access to those same networks?
3748 MS GRIFFIN-MUIR: I'm not sure that the premise of your question, it almost makes it sound likes there's two networks, wholesale/retail and I think what you're asking is, should it be functionally separated in the way that the U.K. functionally separated wholesale, or actually the whole network from the retail marketing divisions.
3749 So, you're asking us, are we advocates of functional separation?
3750 COMMISSIONER SIMPSON: I'm trying to continue on your emphasis of strategic importance, because when you look at the economic importance to this country of continued development of our communication networks, the business case follows initial return on investment likely more from the business application side than from the retail entertainment side, and I'm trying to get a sense from your unique perspective as to whether, from a regulatory standpoint, the business needs, which right now are joined, you know, fibre directly to the business, need to be regarded in some form as a higher priority to the conventional residential retail?
3751 MR. PEIRCE: It's an excellent question, Commissioner, and I'll just say a few words and then pass to Dean.
3752 We think absolutely. And I mean probably absolutely sequentially, you know, because as we tried to explain, in part because of the regulatory framework, in part because of how cable and Telco infrastructure got built out in our residential market because Canadians like watching U.S. TV, you've had a situation emerge in the residential market where in terms of the priority of the Commission to create competition in the residential market, it's not that there are no need for any further measures or that the job's completely done, but the job is well along the road now and you're seeing the virtuous results, you're seeing innovations like IPTV, you know, you're seeing the best results for consumers.
3753 In the business market, that hasn't happened. So, when you refer to Ofcom, we would say really the lesson of the last 15 years of competition where there's not this cable presence and in the business market in Canada, but also in terms of local access really in the rest of the world -- I can't think of another example where it's not the case -- the lesson of competition is that you won't get another end-to-end network built and so you have to think about investment in a different way.
3754 And so, you do want to spur investment in a modern leading edge infrastructure, but we have to get out of this dismissive reference to wholesalers, resellers, you know, as if there's some sort of moral turpitude attached to it.
3755 As the Chair pointed out earlier this week, we have defined facilities-based competition to mean companies that use their own networks or their own networks in combination with others.
3756 That's not a hybrid facilities-based competitor, that's a facilities-based competitor.
3757 And so, it is incredibly important for our business markets where there's lagging competition, where prices -- where there's not competition present prices are going up and the bigger economic indicators like our productivity is declining.
3758 So, digital strategy, what you are doing in terms of ensuring there's investment by both incumbents and competitors is crucial.
3759 And Dean has the example of, you know, how we try and do our business and justify the investment and provide innovative solutions to our customers.
3760 MR. PREVOST: Thank you, Chris. And I apologize for my voice. I'm fighting a cold, as you can probably tell.
3761 Let me be very pointed about it. Our ability -- and we are the biggest competitor in the marketplace, just under a billion dollars, order of magnitude larger than anybody else.
3762 Our ability to afford to build new buildings, which we're doing, hundreds and hundreds this year, 30 percent increase in our footprint, will only exist if we can continue to win in the marketplace and to do that we have to use wholesale services.
3763 Let me explain that. Because it is impossible given the way the country's laid out and where businesses lie for us to ever spend the 12, $15-billion for a company of our size to duplicate the network.
3764 And, second condition, when you bid for -- not point-to-point, but when you bid for networks, which is the foundation of the business market, multiple drops, multiple locations, it is almost inevitable that within that set of networks -- network you're bidding for that there is something that is not on your network, unless you're Bell and it's all in Ontario, you're on TELUS, it's all in Alberta.
3765 So, you need somebody else's input to be a part of it. And if you don't have that input, you can't actually bid because no customer says, why don't you bid for your on-net stuff and I'll let them bid for their on-net stuff and I'll aggregate it.
3766 They ask you to bid for the network, on and off-net combined.
3767 So, part one is, we're not able to bid to be a competitor if we don't have access. And access today means high speed. I don't need one Megabit access, that's 10 years ago. We're selling 10 Gigabit links to customers today. We're selling 100 Gigabit -- Megabit, 1 Gigabit ethernet services.
3768 So, the access for the future, it's frankly absurd to suggest it needs to be anything other than broadband. That's what businesses need.
3769 Now, you go to productivity. The core element for productivity for all businesses today is to virtualize their world, to move things to central locations and have everybody access it from afar, whether it's software as a service, service in a cloud, storage in an environment virtualized amongst many. That's the core of productivity developments in the 21st century.
3770 There's only one requirement to make that happen and that is broadband. That is what you need, high availability, symmetrical, always available broadband. And the only way you'll get folks like us competing to bid for that service is if I can sprinkle some incumbent network into my solution because the choice not to do it means I don't bid and I am not in business.
3771 And being in business is kind of fundamental for us to make the investments we're making. So, there is no way to do this without having wholesale access.
3772 And I'm not saying we don't pay for it and I'm not saying we don't offer a return for it, those are very legitimate and we would agree with that.
3773 By the way, I would hope you'd also put a condition of service on them and a requirement to perform would be helpful as well so their behaviour suggests that I'm actually a customer as opposed to somebody you'd like to see go away.
3774 But it's fundamental and we're willing to pay for it.
3775 The point we're trying to make over and over though is because you can't get a duplicated network for business out there, yes, in particular buildings in main cities for sure there's choice, but that's not the majority of the access needs.
3776 So, because you can't get a duplicated network, because you've got to use the incumbent -- the incumbent by the way sees a rate of return by my wholesale purchase, right. It's not like I'm saying I'm building a second access that somebody's subsidized for me and you can either keep that network or lose that network. The only difference for them is, do they get it from retail or do they get it as a wholesale rate?
3777 And the difference is not 50 percent, and importantly their costs go down. When I buy wholesale from Bell or TELUS they don't have to sell, they don't have to market, they don't have to have any service level agreements, they don't necessarily have to roll a truck and if they do, I pay for it.
3778 They don't have to deal with collections, accounts receivable, any of that stuff. I deal with that.
3779 So, when I pay them a wholesale rate which is less than their retail, don't assume that they're carrying all the same costs on, their world is very different.
3780 So, they're taking that single access that they have in that building and they're making sure it's used one hundred percent of the time, every month of the year for its entire life.
3781 The only question is, are they getting the cheque direct from the customer or are they getting it through me? And it's a very different rate of return environment, a far better rate of return environment than would exist if you're building a second access into a home and if you win the customer you earn a return; if you lose it, you lose it for years.
3782 THE CHAIRPERSON: All of this applies to business, presumably?
3783 MR. PREVOST: All of this is to business, Mr. Chairman, yes.
3784 THE CHAIRPERSON: Yes.
3785 COMMISSIONER SIMPSON: Following on, Mr. Prevost, on that excellent answer, in any business I've been in in my life I've always -- and I'm asking you to put your ILEC hat back on -- in any business I've ever been in, I've always taken great comfort in having some cornerstone accounts that pay the rent, allowing to me to be a lot more cavalier, a lot more aggressive in my growth plans because I know I've got my back covered.
3786 And the question I've got is, from your unique point of view, what is, in your view, causing TELUS and Bell to not embrace wholesale as fulsomely as you believe they should in terms of their business plan?
3787 MR. PREVOST: In terms of the business market or the residential market?
3788 COMMISSIONER SIMPSON: Business.
3789 MR. PREVOST: So, business market. In their shoes, acting rationally, I would do what they're doing, and here's why.
3790 If you believe what I'm telling to you, which is the use of wholesale access is a fundamental input to any network bid, then for me to not have access to it, or for me to only have access to it at low speeds means I will be an ineffective competitor.
3791 They won't necessarily get any additional regulation potentially, but I'll be an ineffective competitor and their ability to win and their ability to be in a kind of undisturbed position will only go up.
3792 I'll have to be narrower and narrower and smaller networks and fewer customers and less services and, frankly, I'm going to be shrinking like this and their world will be great. They'll basically own the retail environment, a détente between themselves and TELUS as we see now, as they each retreat to their home market, disavowing the off-net market as unnecessary, they kind of pull back.
3793 And it's a happy world for them, frankly. It's a very happy world, where the annoyance of competition isn't buzzing around them.
3794 I get that. In that environment, I'd like to argue for the same thing. I don't think it's in anybody's interest in Canada, I don't think it's in the interest of productivity and it's certainly not in the interest of product development.
3795 Like, let me re-emphasize something I said. We've been first with so many things it's shocking. Frame relay, we were here first. You know, toll-free services at advanced features in the early 90s first. MPLS networks, IP trunk, that was first and the reason it was first is because they have no incentive to do it themselves because it's all about milking what exists.
3796 Our argument is, we've got to launch something new to win over the fact that we're smaller, we're less known and we don't own it all. So, that's the first part.
3797 MR. PEIRCE: Just to underscore a bit the difference too, I mean whether MTS Allstream likes it or not, our competitor business is out there for all to see. I mean, it's half of our business. We report it to the markets and, as you say, we're unique. There's no one else in the country that's publicly traded that reports results like we do that shows you what the competitor out-of-territory business is.
3798 Bell doesn't report their enterprise results out of territory, nor does TELUS, and there's a reason they don't and there's a reason that TELUS has told its investors that it's an unattractive space and there's a reason that George Cope has told the markets that he's going to be the number one TV provider in Canada and really spent all of his time in his remarks to you talking about the residential market, because to the extent that they've retreated to their incumbent space and they don't really have to deal with competition in the business market, that's fine. Small and medium size business will just get milked and large enterprise business where we show up, if they control the wholesale access, they in great measure control the competitive result.
3799 So, it's just not strategic for them, which is why wholesale -- a wholesale regime that invites the kinds of competitive solutions that Dean's talking about will drive behaviour of both us obviously and incumbents.
3800 COMMISSIONER SIMPSON: Thank you.
3801 Expressing my naivety or lack of technical understanding as to how built out TELUS and Bell are across this country, you are looking at your system as a whole, are you in an either/or situation with respect to your ability to negotiate with Bell and TELUS and, if not, how much overlap is there where you have the option of both?
3802 MR. PREVOST: So, within each of their home territories, so TELUS being Alberta, B.C. and some parts of Quebec, Bell of course being elsewhere, ourselves in Manitoba obviously, we are far smaller than them in their territory.
3803 Compared to them outside of territory, we're in a similar space. The issue though is that we're all in the same space and that the place that everybody has built is in the place that has the highest most obvious returns in the largest buildings, the biggest parks, the largest data centres.
3804 So, really we've all kind of piled on into the same locations and then what you leave is large tracts, the vast majority of the Canadian geography where there really is only one solution.
3805 Now, in terms of ability to negotiate, you might think I'd have a lot. I'll spend over $200-million this year, remember I'm only a billion-dollar operation, I'll spend 200, by far larger than my entire salary and benefits budget for all of the 3,000 people that I have, pay that to Bell and TELUS for access to their networks to serve my customers.
3806 My ability to negotiate is zero. If you don't mandate it and set the rules around it, I have no ability to negotiate, none.
3807 I'm not in their eyes a customer, I'm an annoyance, I'm a pain, I'm a problem, I'm a reduction in return.
3808 So, there's no desire or need or want, and they can use the age-old element of delay to prevent me from being effective.
3809 If I need access to something, and there isn't a very particular rule that surrounds it, that sets the rate and the way they need to behave, then I won't get it.
3810 Or, I will get it and get it at a high price that makes that one drop in a 20-drop network -- makes it uneconomical. That one drop can poison the entire network. They will price it such that it makes it uneconomical to bid.
3811 So I may get it, but it's a victory I won't win.
3812 Part 2 is, if they delay long enough, I won't be able to bid. Bids come in, I need two-week, three-week, four-week turnaround. If there is not a rule and a set of arrangements put in place, there is no way you can configure a network and bid it within the time that a customer would want.
3813 So the practicalities are, if you don't decide it, I won't get it. There is no way to get it.
3814 COMMISSIONER SIMPSON: Thank you.
3815 MS GRIFFIN-MUIR: Just to underscore what Dean is saying, even in stuff that is -- let's call it quasi-mandated, that has come before the Commission, ADSL being one of those services, we have been asking for what we are proposing since the late nineties, and for Ethernet access since 2003, and we still don't have a workable model.
3816 And these are things that are actually before the Commission.
3817 COMMISSIONER SIMPSON: I am aware of that. Thank you.
3818 I have two more questions, and then I will turn it over to my colleagues.
3819 This is the last business question, and I will end on residential retail.
3820 Satellite -- is this a B Plan for business for you? Is it an A Plan? How does it work?
3821 MR. PREVOST: Or a C Plan.
3822 Satellite is an access choice, for sure, but it has speed limitations, it has latency issues. So you can run some things across it. Running a voice network with a satellite connection, sure, or a low-speed internet access upon which you are using it primarily for browsing and for information, sure. But can you run a data centre off of it? Absolutely not.
3823 Can you run a major branch that requires uptime synchronization between the local branch and the home office? No, you can't.
3824 So it has some -- to take it more broadly, in terms of wireless, it has some applicability, but it is in no way, shape or form a replacement for a wire broadband access.
3825 And that is true for -- maybe I'll extend it -- you didn't ask, but I'll extend it to mobile wireless. It's also a legitimate element of access, but only for particular kinds of uses or applications, and for particular customers with particular needs.
3826 You do not use it as the major way of connecting a business to itself or each other. That would never be used, and won't be used, I don't think, in my lifetime.
3827 MR. PEIRCE: An important nuance to understand in the conversation around investment is that we don't maintain that there are not any competitive access providers that we don't use, there are. We use them as often as we possibly can.
3828 Ms Tulk, from Bell, mentioned cable being out there in her Atlantic Canada routes. Certainly Eastlink is an access provider that we use whenever we can.
3829 There is a variety, but there is not a ubiquitous network. So the fact that there are, in instances, competitive providers that we can use should not -- that is just all part of you applying the Essential Facilities Proceeding.
3830 Despite the other providers there, is there still a downstream problem with competition because of control over that access bottleneck piece? We would say in the business market that there clearly is.
3831 And you want those access -- presumably, part of your determination is that you want those alternative providers and you want us investing in network infrastructure, not just the incumbents.
3832 MR. PREVOST: In fact, if I may add, to be clear, as Chris exactly says, we use them.
3833 Now, there is a complexity in organizing 12 different suppliers for your network across the country, because if something goes wrong and when you need to create a bid, you have to interface with all of them.
3834 So there is a lot of time and there is a lot of effort, but we use them. Everywhere we can we use them, and we get that, it's part of the way that we need to operate.
3835 But understand, in totality, that entire capability is maybe a dozen firms, of which only two or three of any size -- meaning over $12 million or $15 million in size -- and their total network capability is a drop in the bucket of what is required.
3836 And much of what they have is in the same places where everybody else is.
3837 So in terms of new incremental coverage, they are helpful, but a country mile from a full solution.
3838 And maybe one final point is, just because they have a physical facility doesn't mean that we can use it to complete the service we need. There is so much more to it than just having a piece of fibre line into a building.
3839 If you want to create a particular kind of service, you need to have a particular way of interfacing, they have to act in a particular way, and when you take it to that level, that kind of highly managed class of service, MPLS network for global customers, not everybody can perform in a way to allow that to be possible.
3840 So even though they may physically be there, they may not actually be a legitimate choice for creating the service that you need to.
3841 So the glass itself does not make a service provider.
3842 COMMISSIONER SIMPSON: Thank you very much.
3843 The last question: Again, shifting the balance back from wholesale to ILEC, on the residential retail side of things, with respect to broadband access -- you know, you have asked the Commission to consider what you would call a technological neutrality, a levelling of the playing field, but on the regulatory side there is an absence of any requests for regulatory neutrality, and I am thinking more of the cableco side of things.
3844 Is this simply because you have been very effective at prioritization? What is the relative importance of regulatory neutrality to this whole proceeding?
3845 MS GRIFFIN-MUIR: I have to say that I am not entirely sure what you mean by regulatory neutrality. Are you talking symmetry?
3846 COMMISSIONER SIMPSON: We have heard a lot from the ILECs about the need for regulatory --
3847 MS GRIFFIN-MUIR: Symmetry I think you are talking about.
3848 COMMISSIONER SIMPSON: Symmetry. I'm sorry, my apologies.
3849 MS GRIFFIN-MUIR: No problem.
3850 That's what I was interpreting, I just wanted to make sure.
3851 MR. PEIRCE: Your phrase is better.
3852 MS GRIFFIN-MUIR: What we are suggesting is, it's equitable. So if there are perceived problems, or issues that some regulation applies, let's say, to us in Manitoba that doesn't apply to Shaw or other cable distributors in the telephony market, certainly they should apply equally.
3853 In terms of architecture, though, the networks are built very differently. Paul could speak better to that.
3854 What we are suggesting is, it doesn't have to look exactly the same. It should be compatible, to the extent that the service is mandated for the incumbent.
3855 Something similar should be mandated for the cablecos that fits with their network architecture and the way their network architecture is evolving, the same as for us -- fits with our network architecture.
3856 We don't agree with just kind of, because I aggregate my network this way, the cable networks should look exactly like our service.
3857 But to the extent that there are issues with symmetry, I think they are fairly straightforward to address.
3858 COMMISSIONER SIMPSON: I hear you saying that it's not even a "nice to have"; it would be desirable, but not necessarily a known quantity as to how it would look at this point.
3859 MS GRIFFIN-MUIR: Well, no, I think -- we are both incumbent operators, so the ILEC, in their territory, is the same as the cable guy.
3860 And to the extent that something is mandated for the ILEC, it should be mandated for cable, it just doesn't have to look identical in the way the service is offered.
3861 COMMISSIONER SIMPSON: I understand that.
3862 I am done. Thank you very much.
3863 THE CHAIRPERSON: Michel...
3864 COMMISSIONER ARPIN: Thank you, Mr. Chair.
3865 Mr. Peirce and Mr. Frizado, at the bottom of page 10 and at the top of page 11, Mr. Peirce, you stated this morning that the pricing of wholesale services should consider a higher cost of capital and, potentially, a lower retail demand.
3866 At the bottom of page 13, Mr. Frizado said that the wholesale mandate should not disincent the ILEC from investing in new network infrastructure.
3867 Here is my question. Why is your position -- is there a disincentive to ILEC investment that should be addressed through the pricing of wholesale investment?
3868 MR. PEIRCE: I will let Paul fill in here, in terms of his comments.
3869 What we are saying is, the wholesale framework, Commissioner, as it has existed to this point, has represented no disincentive to investment.
3870 Now, we are pointing out that your essential services regime is predicated on: Is there competition present or is there not? Do we need wholesale access in order for there to be competition?
3871 In terms of competition, you now have a different reality in the residential market than before.
3872 So our investment going forward, in terms of things like fibre to the home, is different in terms of risk, what the business case is.
3873 So if there is to be wholesale access going forward for those types of inputs, there needs to be recognition of the different costs in terms of the pricing methodology.
3874 But we would say that, in terms of our investment decision -- if you look at the market share for broadband services in the residential market, it's pretty evenly divided between -- with puts and takes -- cable and telco. The independent providers are a much smaller piece. I wouldn't say that that is driving the investment decision.
3875 THE CHAIRPERSON: Is that a "Yes" or a "No"?
3876 COMMISSIONER ARPIN: Do you want to add something?
3877 MR. PEIRCE: I think it's a "No".
3878 THE CHAIRPERSON: There is no disincentive.
3879 MR. PEIRCE: We would say that the wholesale framework is not a disincentive to investment.
3880 COMMISSIONER ARPIN: On another area, will MTS be prepared to increase the pace of its fibre rollout if competitors were denied access to next-generation networks?
3881 MS GRIFFIN-MUIR: Decrease the pace? No.
3882 What we are saying here -- what Chris just said is really -- our investment in fibre infrastructure is really driven by competition from the cablecos, and we are responding to that with network investment.
3883 Wholesale doesn't actually -- it's not determinative of whether we invest or not.
3884 MR. PEIRCE: It's important, though -- you ask about MTS Allstream, and Dean would tell you how we would be investing in terms of Allstream if you were to deny wholesale access.
3885 MR. PREVOST: You are exactly right, here you get the combined view.
3886 That wholesale regime is not driving our investment in our residential territory. That is purely a competitive decision. You fight, you invest, you win.
3887 On the business side, if I don't have wholesale access to broadband networks from the incumbent providers, I won't have a business, so I won't have any money to invest.
3888 So it's a resounding "Yes", it will stop my investment because I won't be able to compete on the basis that I spoke about in my earlier answer.
3889 COMMISSIONER ARPIN: Thank you very much.
3890 Thank you, Mr. Chair.
3891 THE CHAIRPERSON: Len...
3892 COMMISSIONER KATZ: Thank you, Mr. Chair.
3893 Good morning. I am going to take you to your evidence of this morning, I just need a couple of clarifications.
3894 On page 3, in your last paragraph, at the second sentence, you indicate that international evidence repeatedly shows that the greatest driver of investment is competition in all its forms. That, obviously, includes wholesale.
3895 Do you have any evidence to support that wholesale services internationally have resulted in lower prices to end users?
3896 MS GRIFFIN-MUIR: Recently the EU put out a score card citing Norway, Denmark and the U.K., which all have open access infrastructure, saying that their customers have benefited from higher speed broadband at lower prices.
3897 COMMISSIONER KATZ: We had Dr. Crandall here yesterday morning, with a different view. That's why I am asking if there are any concrete studies that you could direct us to that would support your statement here.
3898 MR. PEIRCE: I think we have evidence on the record, in terms of our international studies. We will buttress them again, but I think we have evidence on the record to support the notion.
3899 We, of course, also point to the Berkman study, in terms of its international comparison.
3900 And, frankly, given the fact that -- Commissioner, I really think, given the fact that every other major jurisdiction that we can think of, over the past -- if they didn't start there, over the past few years they have turned toward an open access regime and, to a greater or a lesser extent, expressed their lack of satisfaction with what has happened in terms of competition as a result of not mandating access.
3901 I find it hard to hear Dr. Crandall, in the face of that, say that there is no empirical evidence that an open access regime has succeeded anywhere. I mean, I just think that, on its face, it's absurd.
3902 COMMISSIONER KATZ: Whatever you can bring to our attention, it would certainly be beneficial.
3903 On page 6 you indicate -- I think it is, Mr. Prevost, your testimony -- that you are currently able to serve about 30 percent of your existing customers with your own network.
3904 Can you give us an idea as to what it was several years ago? What is the trending from and where is the trending to, based on your capital plans for the next couple of years?
3905 MR. PREVOST: I probably didn't draw -- Mr. Commissioner, I didn't draw the connection well enough in the argument, but we are going to put about 675 new buildings in over the next couple of years, starting from a base of 2,100. So that 30 percent will go to 35, maybe 36 percent, with that additional 675.
3906 And that's served directly.
3907 COMMISSIONER KATZ: What was it a couple of years ago?
3908 MR. PREVOST: It would have been in the high twenties, 26 or 27 percent.
3909 So it's marching up a couple -- contingent on investment, of course, which changes the pace of change, it's marching up at a couple of percent a year, basically.
3910 MR. PEIRCE: I would say, Commissioner, too, that we don't pretend it is only the regulatory framework that is involved in us getting our business done. It's a crucial ingredient, but we also have to figure out how to sell better on our network than selling to customers who have huge off-net needs.
3911 There are things we are doing internally to try to drive that percentage up as well, because in terms of our margins, our ability to control our customer experience, our world is just so much sweeter if we can get a customer on our own network.
3912 So our whole imperative is to do so whenever we can.
3913 COMMISSIONER KATZ: Do you think there would be overall benefit to Canada if there was an incentive placed on wholesale, if the Commission does go that way, in order to favour investment?
3914 In other words, the wholesale rate would be structured in such a way that there would be an incentive to invest, rather than to lease facilities.
3915 MR. PREVOST: That's an interesting idea.
3916 What I would say is that I think about that in very much the descriptions I have been giving you -- right -- which is, it is the wholesale access that basically keeps me competitive, or keeps me in the business, to generate the margins that let me invest.
3917 So I do see a connection between having a wholesale -- well, frankly, being in business and having wholesale access.
3918 As for the incentive, I have not given that any thought.
3919 MS GRIFFIN-MUIR: I think that is probably the regime we are living with now. Most of the services we buy, with the exception of perhaps CDN. Our price with margin, that is over and above cost plus 15.
3920 And when we first began local competition, the prices associated -- in fact, there were very few services defined as essential, with that in mind. You know, to the extent that we provide less wholesale service, we are incenting competitors to build out their network.
3921 But there is the financial reality of having to generate revenue. So if you are paying a premium --
3922 COMMISSIONER KATZ: If there is no incentive to build out because you can buy it, and the payback on leasing is such that there is no incentive, then it will never happen either.
3923 MS GRIFFIN-MUIR: I don't know if that's entirely true, because what Dean was just saying is that to have 100 percent control, your margin is better, but also your service quality, what else you can offer the customer, is totally within your control.
3924 MR. PREVOST: Let me add to that. Even under today's, let's say, low-speed essential facilities, for me to bid an entirely off-net network is uneconomical. It doesn't make any sense, for a variety of reasons.
3925 First, the margins associated with that are very low. Even though you may have ILECs here saying that the price is too low, the margins associated with that, at a gross margin level, may be 30 percent. You can't even pay for the associated costs.
3926 That's what I was trying to say in my other answer. Even with a robust wholesale regime, you are still only going to use -- I am only going to use off-net access selectively.
3927 So if it's the vast majority of a bid, I won't be bidding it.
3928 So I still have to be building out my own network, because the gross margin associated with my network is 90 percent, and the control I hold over my network is so much more that, if I have to rely on an entirely wholesale provided by Bell, not only will I not make any money, I will not be able to meet the SLAs or respond in a timely manner.
3929 COMMISSIONER KATZ: I've got it, thank you.
3930 MR. PREVOST: Thank you.
3931 MR. PEIRCE: Just one last point, Commissioner; I would say that the Commission, over the past decade, has spent a lot of time figuring out what is the right -- call it mark-up in order to ensure that competitors are investing in their own infrastructure. That has always been sort of framed in simplistic terms, framed in a way which says: Make it pricey enough that it doesn't work for a competitor to not be investing.
3932 But the lesson we have had with that focus has been that all of the facility-based competitors have disappeared. Fourteen of them, gone, because the investment equation for the capital markets to invest has not been there.
3933 Because for the capital markets to invest -- for the markets to like Allstream, for the markets to like any facilities-based competitor, they want to see what the business model looks like. If the business model looks good, then they are going to be wanting to invest in capital to, as Dean says, increase margins. Then you are into a growth story.
3934 But when you are in this world of thinking about it in terms of the mark-up on the wholesale price, what that says to an investor is: It's not a workable regime. I'm not going to enter.
3935 COMMISSIONER KATZ: I understand.
3936 The last question is on the same issue of investment. On page 5 you talk about a Bell/TELUS joint expenditure of $1 billion to convert their networks to HSPA, and you underscored the word "joint".
3937 Are you suggesting something there?
3938 MR. PEIRCE: I am suggesting a few things. One, what they were telling you today -- although it seemed to me, in their comments to you, that they were nuanced when they needed to be -- is that they were going to delay their investment if you mandated a wholesale regime.
3939 I am showing you the experience of what they have done when something pro-competitive has been done in terms of regime.
3940 A pro-competitive wireless policy was announced. What are they doing? They are investing.
3941 They aren't delaying, they have done it more quickly, and that is because competition is meeting them.
3942 The joint aspect of it is just to -- I think to demonstrate a few things. One, that network build-outs are expensive, and the notion that people have to collaborate to do them isn't a bad thing.
3943 Those are two companies with, you know, not equal but similar economies of scale in their arsenal. So when they are talking to each other about doing things across the country, it's a whole different deal than when Dean is trying to negotiate wholesale access.
3944 So they shouldn't be heard to say that network sharing, in the form of wholesale, is such a bad thing, when it's a defining feature of how they are building out their next-generation wireless network.
3945 COMMISSIONER KATZ: Okay. Those are my questions. Thank you.
3946 THE CHAIRPERSON: Elizabeth...
3947 COMMISSIONER DENTON: Thank you.
3948 Good morning. That was a very helpful presentation.
3949 I have a few questions, both on the Enterprise side and on the residential side.
3950 First of all, I am wondering, on the Enterprise side, if you do or would use cable facilities.
3951 MR. PREVOST: I do.
3952 COMMISSIONER DENTON: You do?
3953 MR. PREVOST: Yes.
3954 Now, what they offer -- and I was trying to make that point in terms of the distinction between a facility and a service. The range of services that we can get from a cable company, be it Eastlink, through to Access Communications, Shaw, whoever it is, is more limited. They don't have a full suite that goes up and down the stack of business services, but we do use them.
3955 In fact, I can't think of one that we don't use.
3956 We use them within our design and development of a network bid.
3957 COMMISSIONER DENTON: I am thinking of Rogers. As a very sophisticated system, you would use Rogers then.
3958 MR. PREVOST: We do use Rogers, yes.
3959 COMMISSIONER DENTON: Are there any services, then, that you would need -- any other changes that you see necessary for bringing the two networks -- making them more equitable?
3960 MR. PREVOST: What I would say, back to the service comment, is that the land of IP networking has some simple things, like accessing internet or very simple broadband access, all the way up to very complicated services like MPLS, which is basically taking traffic and characterizing its nature into six different ways, and being sure it's treated the same all the way.
3961 What we buy from cable companies tends more toward the earlier of my comments.
3962 So we can use them, and we do use them, on a network for a bank, where they are a backup broadband circuit, but it's a very simple service, simply a dual access.
3963 What we don't use them for is to complete a global MPLS network. The nature of that service doesn't allow for that.
3964 The second element of it is, it's not just the service or the facility, it's the way in which they interact with us.
3965 If you are built for business -- which means that if there is a cable cut on a cable facility, it needs to be repaired, for some of my customers, within two hours. That's not typically the way a residential cable company that is predominantly residential is configured. They don't roll a truck, they don't have a network operating centre that interacts with mine.
3966 So I not only have to find a willing facility provider and service provider, but they also have to be willing to act and operate in a model that will let me meet the service level agreements I have.
3967 MR. PEIRCE: One telling observation, Commissioner Duncan -- and you may well want to ask Rogers about this -- is that Rogers Business Solutions is generally using what was the Call-Net network. It's not using the cable network.
3968 So it just goes to show you that the cable network (a) is not ubiquitous, certainly in a business sense, and (b) will be available, as Dean says, for certain elements of what we do as a telecommunications solutions provider, but won't be relevant to other things we do.
3969 COMMISSIONER DENTON: Just a quick point on your point about the servicing. I suppose, if you wanted to have that level of service, you would be willing to pay for it.
3970 MR. PREVOST: Yes, we would. Frankly, to end another point I made, I would love it if, for the service I buy from Bell and TELUS, they would meet any kind of service requirement for me. That would be very helpful. But we would.
3971 The issue is, can they do it? And our experience has been, typically, that if you are predominantly in the residential business, you are not going to configure a service uniquely for the business market, and you are certainly not going to configure the way you roll a truck and respond to meet my needs, because it's a tiny drop in the bucket compared to the residential business.
3972 COMMISSIONER DENTON: We have identified some areas where we might insist on bringing the two networks into parallel, for example, aggregation we have talked about, and interconnection speeds, but there are no issues that you would want to see added to that list.
3973 MS GRIFFIN-MUIR: I think, actually, when you are talking about the business market -- and Paul will speak more to it -- the cable network is not a ubiquitous network the same way that -- where they have a regional monopoly -- or had, excuse me -- in residential.
3974 So I think that when you are talking about those kinds of services, you really are speaking to their consumer network.
3975 MR. FRIZADO: Yes, their origins have really come from high-speed internet, and as Dean indicated, using it as a backup is a means, it's not a primary item that we would be using; obviously, some small business-type lines, et cetera, that most of the MSOs are now offering.
3976 And as Dean indicated, some of the more mature MSOs have what we will call more of the CAIP-type business, the Eastlinks, as well as the Shaws, and now Rogers through some of their expansion.
3977 So they are just getting into that game, but again, generally, it is limited to a smaller footprint than an ILEC would have.
3978 COMMISSIONER DENTON: Thank you.
3979 Turning, then, to the residential side, I notice that you seem to be advocating the high-speed -- the matching speed, but not CO-based access.
3980 I am just wondering, because you are also talking about innovation, and the importance of innovation to driving the economy -- and I note from a lot of the material and presentations that we have had that many of the ISPs feel that access to the CO is what is going to allow them to be the most innovative, not just simply a matter of offering the same speed.
3981 Is that correct, that you cannot be as innovative with matching speed as you could be with a CO-based service?
3982 MS GRIFFIN-MUIR: I think we would say both.
3983 Paul will talk to what is technically and economically feasible.
3984 And I believe, actually, that is what CAIP said yesterday. They are looking for a technically and economically feasible interconnection point, and what was proposed in the narrow CO service would not be technically or economically feasible.
3985 So we proposed an alternative to that, which Paul will describe.
3986 MR. FRIZADO: From the narrow CO-based, you would have to locate in each one of the COs, and if I used Manitoba as an example in saying how many DSLCO-based offices we have, you would have to actually locate in some 250 locations.
3987 COMMISSIONER DENTON: Excuse me, let me interrupt you. I think I do understand, this is your regional model that you are referring to.
3988 So you are not opposed to locating in the CO, it's just on a regional basis is what you are favouring.
3989 MR. FRIZADO: Yes, we would aggregate it to regional, which, in our case, happens to be kind of in a city perspective, and it would be about nine for the entire province.
3990 So you will see an aggregation going to nine points, as opposed to having to locate in 200 to 300 locations.
3991 COMMISSIONER DENTON: So at those nine points, then, they would not be subject to ITMPs or UBBs, if you had those in place.
3992 Is that correct?
3993 MR. FRIZADO: That's correct.
3994 MR. PEIRCE: Just to be clear, we would say that the aggregated model is far more pro-competitive than the strict CO-based approach.
3995 So it is in no way intended to sort of limit the ability of a competitor, it's to make the possibility of a wholesale service that is economically efficient.
3996 And from the evidence that has been given by, I think, all parties, the existing service is really not useful for anyone.
3997 COMMISSIONER DENTON: Okay. Thank you very much, I appreciate the explanations.
3998 That's it, Mr. Chairman.
3999 THE CHAIRPERSON: Candice...
4000 COMMISSIONER MOLNAR: Thank you.
4001 Just following up on the aggregated ADSL -- and I do know that, as you pointed out, you have been working at this for some time.
4002 Can you tell me, on the business side, how would it change your ability to use the aggregated ADSL, if the model, as you propose, were put in place?
4003 MR. FRIZADO: Maybe I will answer that, and maybe I will get a clarifying question.
4004 We would use it in the similar way that we use it today, get aggregated connections in, particularly, cities, or locations in geographic areas. That's where we would have network interconnection points with incumbents, in order to access those DSL types of services, as opposed to going out to hundreds and hundreds of COs to pick up individual DSL services.
4005 COMMISSIONER MOLNAR: I'm sorry, maybe I could clarify my question. I was thinking of it more from a business strategy, that you would get it at the highest available speed. With greater aggregation, would that improve its ability for you to serve business?
4006 Would it be functional for more than just internet services?
4007 From a business strategy perspective, how does that change the use of aggregated ADSL for Allstream?
4008 MR. PREVOST: It would be helpful. Indeed, it would be helpful.
4009 It would not be a complete solution, given its speed limitations and a variety of other things associated with it, but is it more helpful than now? Absolutely, yes.
4010 MR. PEIRCE: Of course, what it does is, it lets us get to a greater number of customers with the capacity that we need to. So it justifies the investment in our own network.
4011 Whereas, if it's an individual CO-based service, it's a mile too far. You know, we can't justify that kind of investment, so there are that number of customers that will not get bids from us.
4012 And, of course, you think about us as, as Dean says, the largest, by far, of a competitor, but in that small and medium-sized business space, we have 2 percent market share.
4013 So that just tells you the extent of that community in Canada that really does not have choice.
4014 And I would say that is why we had thousands of communications going to the government, from people who you would not think would be interested in telecom regulation, in the context of our petition process.
4015 The one limiter that we would mention is, we have had quite a protracted discussion about, if there is an aggregated wholesale product, how does that relate in terms of usage-based billing or throttling. Our proposal is to say that you give the wholesale customer the capacity, and the wholesale customer manages the traffic.
4016 You don't then allow the incumbent to effectively build a wholesale customer for his retail customer's usage.
4017 So what it does is, it gives us the capacity we need to craft the solutions that Dean is talking about for the needs of our customers, to help them use their data and information better.
4018 MR. PREVOST: I would almost kind of wrap it in with the cable question, which is: Helpful, but not enough.
4019 That's just because, frankly, the way the country looks and where businesses are. Those solutions will add incremental percentages, but they are not going to make a very big difference.
4020 And, again, as I said before, we use those -- even in their current form, we use them as much as we can. But, again, it's a tiny element of a total network solution.
4021 COMMISSIONER MOLNAR: Okay. Good, thank you.
4022 Just one more question -- and I am not even sure if I am going to phrase this correctly. On the residential side, is there some minimum bandwidth, or some way we can identify what is an IPTV-capable home?
4023 When you do the build-out, obviously, you build out net, and at some broadband capacity you then are able to deliver IPTV.
4024 I understand that there are other components to it, but is there some capacity or some speed equivalency that we would say, "That is an investment to enable IPTV"?
4025 MR. FRIZADO: There is a variety of architectures out there, as well as the types of programming that you actually offer. Standard digital television versus HD requires multiple -- more bandwidth than HD channels and --
4026 COMMISSIONER MOLNAR: Because we are not technical, just the minimum amount.
4027 What is the minimum bandwidth required to deliver IPTV?
4028 MR. FRIZADO: I would say that most carriers would probably be in the 20-megabyte range.
4029 COMMISSIONER MOLNAR: So at 20 megs you could do it. Okay, thank you.
4030 THE CHAIRPERSON: Thank you very much for your presentation.
4031 We will take a 10-minute break before we proceed with the next one.
--- Upon recessing at 1037
--- Upon resuming at 1048
4032 THE SECRETARY: À l'ordre, s'il vous plaît. Order, please.
4033 THE CHAIRPERSON: We should take a picture of you. You are not normally that cozy altogether.
4034 THE CHAIRPERSON: Okay. Just wait one second for Len Katz.
4035 THE CHAIRPERSON: Okay, let's go.
4036 THE SECRETARY: Thank you, Mr. Chairman.
4037 We will now hear the presentation by Cogeco Cable Inc., Quebecor Media Inc. on behalf of its affiliate Vidéotron Ltd., Rogers Communications Inc., Shaw Communications Inc. and Bragg Communications Inc. (Eastlink Cable Systems), who will be appearing together.
4038 Mr. Ken Engelhart is appearing for the cable carriers. Please introduce your colleagues, after which you will have 60 minutes for your presentation.
4039 MR. ENGELHART: Thank you very much.
4040 Good morning, Mr. Chairman, Commissioners, Commission staff. I am Ken Engelhart, Senior VP Regulatory at Rogers.
4041 With me today, on my right, is Tony Faccia, Vice President, Wireline Access Networks; directly behind me is Dave Watt of Rogers, Vice President, Regulatory Economics.
4042 Representing the other cable carriers, down second from the end is Natalie MacDonald, Vice President, Regulatory Matters at Bragg; and beside her is Steve Irvine, Vice President, Technology.
4043 On the other side, second from the end is Michel Messier from Cogeco, Director, Regulatory Affairs; beside Michel is Chris MacFarlane, their VP of Corporate Engineering.
4044 Quebecor is represented by Dennis Béland who is beside Tony; with Dennis is Pierre Roy, their VP of IP Technologies.
4045 From Shaw, Jean Brazeau, to my left, Senior VP of Regulatory Affairs; and beside him is Dennis Steiger, their Group VP of Engineering.
4046 Also with us today, we have some folks from CableLabs who are responsible for the DOCSIS Specifications; we have Greg White, the Principal Architect. In a back table to my far right, and beside Greg, we have Matt Schmitt, the Director of DOCSIS Specifications.
4047 Also with us today is Suzanne Blackwell, the President of Giganomics.
4048 This proceeding is about ensuring that Canada has a robust broadband market in the 21st Century. The following three points are key to our position:
4049 First, a dedicated 6 MHz channel wholesale access service will not work;
4050 Second, Canada's internet market is highly competitive as a result of facilities based competition; and
4051 Third, to the extent any wholesale access should be mandated, the current Third Party Internet Access service fully satisfies regulatory symmetry.
4052 Cable and telephone companies compete vigorously today in the provision of broadband services. Billions of dollars are invested each year in facilities and prices are dropping. The entry of three or more wireless carriers with ubiquitous 21 Mbps networks has greatly increased the amount of competition.
4053 In such a competitive market, there is no requirement for regulatory intervention in the wholesale market. Mandating wholesale access is contrary to the government's policy direction and the Commission's framework for essential services.
4054 A dedicated 6 MHz channel wholesale access service would not work. There is no physical facility in a cable network that can be unbundled because the cable network is shared all the way from the head-end to the home.
4055 There is no known viable technical solutions to co-manage the shared network by the cable carrier and a third party ISP.
4056 There is no spare capacity available to support a dedicated channel service. If we provide capacity to third party ISPs there would not be capacity for the cable carriers' higher speed internet services and television services. Even if a dedicated channel service could be provided, it would be too costly for ISPs.
4057 While we do not believe there should be any mandated wholesale access service, if such a service is to be mandated, the current third party internet access obligation, TPIA, is the only form of wholesale access that should be mandated. TPIA was developed in consultation with ISPs to give them access to the same end-customers as the cable carriers serve. TPIA represents the most feasible solution for head-end access to the cable network. TPIA is an efficient form of wholesale access because it relies on the same shared channel arrangements used by the cable carriers.
4058 Some parties have claimed that the wholesale access regulations of the cable and telephone networks are not equitable. We disagree. TPIA provides an equitable level of wholesale access compared to ADSL and serves the same functional purpose.
4059 Different levels of aggregation in the points of interconnection are not inequitable. The one area where we are concerned about potential inequity is the speed matching obligation. If the telephone companies are not mandated to provide speed matching wholesale services, neither should the cable companies.
4060 We now turn to the more detailed discussion of our position. This will begin with a brief background on the cable network architecture and how wholesale access is provided using the current TPIA services over shared channels.
4061 Our panel will also describe the problems that would arise with a head-end based wholesale access service that provided dedicated channels to ISPs.
4062 The presentation will proceed to explain the competitive landscape of the internet market and how investment has brought about increased competition in more advanced services. This is followed by our views on the matter of competitive equity in wholesale access arrangements and, finally, a discussion of next-generation services issues.
4064 MR. STEIGER: Thank you, Ken.
4065 The cable carriers' networks are not like the telephone company networks. A telephone company network is made up of twisted copper pairs, or copper loops, that connect each home to a central office. There is a physical wire to each premise served by the network. Each copper loop is uniquely dedicated to a customer or customer premise. Also, each copper loop is capable of carrying two-way traffic.
4066 Cable networks are arranged in a tree and branch architecture. All parts of the network are shared with other homes. The cable network is made up of a combination of fibre and coaxial cable in what is called a hybrid fibre coaxial or HFC network. Over this network we provide broadcast television, video on demand, internet and telephony services.
4067 Originally, the cable network was designed as one way, carrying only broadcasting signals downstream to the home. The network was then modified to support two-way traffic for internet services. To create the two-way capability cable carriers had to carve out upstream channels from the radio frequencies within the cable network.
4068 The network is used to connect a group of homes in a neighbourhood to a node. All homes connected to the same node share the same coaxial cable feed. As a result, the capacity available on the coax is shared among these homes.
4069 Homes connected to the same node share the same television channel line-ups and they have access to the same range of internet and telephone services. If a channel on a particular node is re-allocated at the head-end, all homes served by that node will be affected.
4070 Systems have varying channel capacities and these are costly and difficult to change. Upstream spectrum capacity is not possible to change in a practical manner.
4071 Within this upstream range the cable carriers typically allocate two or more channels for internet services. While channels allocated to carrying downstream internet traffic can be increased, depending on channel capacity within each cable system and traffic loads, upstream channel availability is constrained.
4072 Some participants in this proceeding have suggested that the upstream availability could be easily resolved by the cable carriers by simply allotting more upstream frequency. We wish this were true.
4073 If it were true, the Cable Carriers would not be severely constrained in upload capacity. We continue to spend hundreds of millions of dollars each year to put more fibre in our network and to split nodes to increase network capacity.
4074 To help illustrate the cable network we have attached a diagram showing the key components of a typical cable network used to provide internet services to retail and wholesale internet customers.
4075 To access TPIA services, a third party ISP interconnects at a point of interconnection, or a POI, which is designated by the cable carrier. The POI is determined based on the routing configuration used for the cable carrier's own retail internet traffic.
4076 The ISP's internet traffic is then carried over the cable carrier facilities between the POI and the end-user premise enabled with the ISP's cable modem.
4077 Cable carriers have been able to reduce the number of end-customers sharing the available upstream and downstream capacity by splitting fibre nodes. This reduces the number of premises that share the fixed capacity available to deliver two-way internet traffic. However, splitting fibre nodes does not increase the number of channels available within a cable system or increase the amount of upstream frequency available.
4078 DOCSIS 3.0 technology, and its predecessors, was developed for the cable industry by CableLabs, the cable industry's research and development organization. DOCSIS 3.0 technology is an important innovation in the cable carriers' data services. It allows cable carriers to bond together several upstream or downstream channels to offer higher speed services, creating a larger channel for the end-customer's internet traffic.
4079 For example, one downstream DOCSIS channel can provide speeds of up to 38 Mbps. Four bonded downstream channels can offer service speeds of up to 152 Mbps. But in order for DOCSIS 3.0 technology to work it must have multiple channels allocated to it. Currently, the cable carrier networks are configured to use all of the available upstream capacity and removing even one channel would seriously degrade the ability to provide DOCSIS 3.0 services.
4080 ISPs subscribing to TPIA receive all the advantages of network enhancements and services developed by the cable carriers while reaching all of the end-customers serviceable by the cable carriers. It provides the ISPs with the same service that end-customers receive from their cable carrier. It is the most efficient and practical solution for providing third party ISPs with access to the cable network for the provision of internet services.
4081 TPIA leverages the shared fibre, coaxial and routing equipment within the cable network to manage third party ISPs' traffic in a competitively neutral manner. Cable carriers manage the shared network resources on behalf of all TPIA wholesale customers and for our own retail internet equally. TPIA was not developed by the cable carriers on a unilateral basis. TPIA was developed based on extensive industry consultation. Technical studies, trials and working group discussions were conducted over a multi-year process to develop the details of the service.
4082 Cable carriers continue to work with third party ISPs on a bilateral basis to enhance the TPIA service. Canada is the only country where wholesale access to the cable network has been implemented on such a large scale.
4083 The development of TPIA was time-consuming and resource intensive work. Limited demand for the service has meant that much of the investment made to develop TPIA has still not been recovered. Changes to the TPIA services to provide either greater reliance on cable carrier backhaul facilities or allocation of scarce channel resources will only hinder the cable carriers' innovation within the network.
4085 MR. ROY: Thank you, Dennis.
4086 TPIA was designed to allow a third party ISP access to the cable carrier last mile facilities to provide Internet services. The third party ISP is responsible for transport facilities from the point of interconnection back to their own internet routers.
4087 Transport facilities that aggregate traffic to larger interconnection points were not included in the design of TPIA because the Commission wanted to encourage facilities-based competition and because the third party ISPs wanted to control as much of their network as possible. Some cable carriers have voluntarily provided more centralized POIs to save room in their head-ends and reduce complexity.
4088 Interconnection at a single cable head-end provides a third party ISP typically with access to tens of thousands of potential retail internet customers. In contrast, interconnection at an ILEC CO typically provides access to far fewer potential customers.
4089 For example, in the Vancouver region, an ISP would need to connect to 23 of the TELUS COs to serve the same area covered by Shaw's single TPIA POI. This is a total serving area of 700,000 homes passed, achieved by a single interconnection under the current TPIA service.
4090 The third party ISPs utilize the cable network last mile facilities between the POI and the end-customer premise. From the POI back to the ISP's router a commercially available transport facility can be purchased from one of many possible providers. This affords the ISP with the flexibility to tailor their market coverage depending on their business strategy and financial resources.
4091 Providing an unbundled 6 MHz channel to third party internet access providers is something that has never been done anywhere in the world. The CRTC looked at it in Telecom Decision 2006-61 and rejected the proposal. It is being re-examined in this proceeding.
4092 There are many overwhelming problems in providing a 6 MHz channel to competitors. The problems can be grouped under these five different headings. The first, "Spectrum Availability Problems"; second, "Provisioning Problems"; third are "Operational Problems"; fourth, "Network Management Problems", and fifth are "Costs". We will discuss each of them.
4093 As we will show, the solution to these problems is to create a form of wholesale access that looks a lot like TPIA.
4094 The cable network is a radio network in a tube. Cable operators use the available spectrum to provide their services. Many cable operators in Canada have rebuilt their network so that they use 860 MHz of spectrum. As previously mentioned, only 5 to 42 MHz is available for upstream transmissions, and of that only about 25 MHz is readily usable. As a result, cable spectrum is extremely limited in the upstream range.
4095 It is this upstream capacity which is used for internet customers that send emails, sharing photos, peer-to-peer, or other signals coming from their home. Because of this shortage of upstream capacity, cable networks are highly asymmetric. We provide much faster download speeds than upload speeds.
4096 There is simply no way to allocate any upstream channels to third party ISPs. Used alone, only four such channels are available, which would quickly be exhausted if unbundled one at a time.
4097 The situation is even worse if DOCSIS 3.0 channel bonding is brought into play. DOCSIS 3.0 channel bonding in the upstream direction will be required to remain competitive to fibre to the premises services, and will eventually require devices to support bonding of four upstream channels. Clearly, in such a context, there are no available channels to unbundle and dedicating any to third party ISPs would seriously impact or prevent the deployment of DOCSIS 3.0 services.
4098 Cybersurf and CISP have admitted in this proceeding that in large markets they should have a shared upstream channel with the cable operator, rather than having dedicated upstream spectrum. This severely limits the possible benefit of having an unbundled 6 MHz channel. There is very little that the third party ISP can do to differentiate their service.
4099 In particular, it should be noted that most cable operators in Canada that engage in traffic shaping currently do so only on the upstream channels. Therefore, it would not be possible for a third party ISP that shares an upstream channel with a cable operator to have different traffic shaping policies.
4100 The devices in the head-end that connect to the cable modems are called a CMTS or cable modem termination system. If the ISP shares an upstream channel with the cable operator, there would have to be a single, shared CMTS. You could not share the upstream without sharing the CMTS. As will be discussed later, there are significant issues with sharing the CMTS.
4101 With respect to downstream channels, although these are not as limited as upstream capacity, all the channels are currently being used. There is no excess capacity. Therefore, if the 6 MHz channel was given to a third party ISP, the cable operator would have to remove an analog television channel or 10 digital channels from its line-up or find some other way of creating additional capacity.
4102 All of the methods of creating additional capacity involve considerable cost and customer disruption. We are already freeing up capacity to stay competitive with DTH and now IPTV. Giving channels to third party ISPs would make it impossible to remain competitive.
4103 Although in our discussion so far we have talked about a single 6 MHz channel, this is not a realistic scenario. The phone companies have embarked on fibre to the home services in order to provide their customers with higher speed internet services. In order to compete with this, cable operators will need to bond an increasing number of downstream channels together to provide the higher speeds available with DOCSIS 3.0 technology.
4104 Cable operators will soon be bonding eight downstream channels together which by itself creates a shortage of downstream channels and the need to free up capacity. If third party ISPs requested eight downstream channels to provide DOCSIS 3.0 service, cable operators would need to free up 16 or 24 downstream channels. This would make cable operators' BDU business entirely uncompetitive.
4105 We will pretend that spectrum is available to permit unbundling and just look at the provisioning and network management problems that would arise.
4106 With respect to provisioning and network management, it is a fact that the cable network is shared. There is no dedicated path to any home. My neighbour's high-speed internet service is delivered to my home and his home, but only his modem can receive it.
4107 Trying to unbundle a shared network creates a number of provisioning and management problems which no vendor or service provider has tried to solve. The CMTS and the cable modems are designed to work together in a single operator's network. Cable modems can use any channel that a CMTS decides to use.
4108 If a third party ISP has their own CMTS, end-user modems could not be restricted to operate only on the third party's channel. They can still interfere with the cable operator's CMTS and the cable operator's customers. In fact, a third party ISP could impair or entirely bring down the cable operator's network and vice versa.
4109 One solution might be to appoint the cable operator to do the modem provisioning for third party ISPs and itself. Of course, having joint provisioning removes one of the key reasons for having unbundling in the first place. Joint provisioning would reduce the problems of conflicting provisioning instructions. However, it would be highly complicated.
4111 MR. FACCIA: Thanks, Pierre.
4112 The third party ISPs want to have their own channel because they want to control their own speeds and network characteristics. But unfortunately it is not that simple. The speeds and network characteristics depend on how tightly the network is engineered and maintained. To provide higher speeds or achieve greater customer density would require re-engineering of the cable network at very significant cost of several hundreds of millions of dollars.
4113 The cable architecture typically involves fibre emanating from the head-end to a number of nodes. Each node will typically serve approximately 500 homes using coaxial cable. When the number of internet customers served by a node increases, or when the traffic used by those customers increases, the cable operator has to "split" the node. This involves installing additional fibre cable or additional equipment or both.
4114 Since the node splitting by the cable operator benefits the ISP, there would have to be some way of sharing the cost of the node-splitting.
4115 In addition, there might be circumstances where an ISP has so many customers in a node that they would require the cable operator to split the node. There would presumably need to be a charge for this.
4116 At the head end, end-users' internet service is connected to a port on the CMTS. Cable operators typically have 200 or 300 end-users per port. However, the third party ISP will at least initially, and perhaps for all time, have considerably less users per node than the cable operator.
4117 The third party ISP would need to have their own separate ports. As a result, they will have far less end-users per port than the cable operator. This will give them a huge cost disadvantage. To get around this problem, they would likely wish to combine nodes in a different fashion from a cable operator. They would want to feed a far larger number of nodes to a single port than the cable operator would. This would result in a different "combining network" at the head-end for the third party internet provider and the cable operator.
4118 Already, the cable operators' combining networks represent a complex and costly configuration of wires and couplers at the head-end. We have attached a picture of a typical combined wiring for the cable company.
4119 With different combining networks for one, two or more ISPs this will lead to an overwhelmingly complex spaghetti-like network of wiring at the head-end. It will be the cable operator's responsibility to provision and organize this wiring.
4120 Mistakes are inevitable and this will have a serious impact on the ISPs network as well as the cable operator's network.
4121 Even with this overwhelmingly complex combining network configuration, there will be a limit to the number of nodes that a third party ISP can combine into one port.
4122 If there are more than eight nodes feeding one port, the signal to noise ratio will make the service unusable.
4123 Therefore the ISPs will not have the economies of scale they need to have a cost-effective network.
4124 There may not be enough room in the head-end to accommodate the addition of new combining networks and possibly new CMTSs.
4125 This would require rebuilding some head ends at enormous expense.
4126 Earlier we discussed node splitting. This is a common practice for cable operators.
4127 However, since the third party ISP will have a different combining network, every time a cable operator splits nodes this will involve rewiring the third party ISP's combining network.
4128 Because this is a time-consuming process, this might delay the cable operator's ability to split nodes. This will in turn result in inferior customer service for cable operator's customers.
4129 Some proposals for channel unbundling would require the cable operator to provide shared access for multiple parties to manage a single CMTS.
4130 CMTS's are currently not designed to do this, and it isn't clear that they can be designed to do it.
4131 Therefore, Canadian cable operators will need to invest in the development of a shared management framework, and then buy special customized CMTS devices that support such a framework.
4132 These have not been developed by any manufacturer and would not normally be developed since only Canada would be requiring these devices.
4133 Canadian cable operators would have to custom-order these CMTS devices. Therefore, the cost of the CMTS would increase significantly and its functionality will likely decrease.
4134 Canada would fall behind other countries as we would not be able to obtain low-cost CMTS devices loaded with the latest functionality.
4135 Cable operators in general would have a degrading of their service compared to telephone company offerings and this will result in decreased revenue, and a decrease in viable competition for broadband services.
4136 Furthermore, the cost implications for unbundling 6 MHz channels are also very bleak for third party ISPs.
4137 Under the current tariff they share in all the economies of scale that the cable operator has realized.
4138 In the new regime they would need to be, in effect, a start-up with their own separate network.
4139 The cable operator is able to fully load their ports and the ISPs would not be able to do so. The third party ISPs would need to pay for all the channels they are using for all of the homes passed.
4140 The cable operators would incur considerable costs to manage the CMTS and to wire and frequently rewire the combining networks.
4141 If as described previously the cable operator incurred costs to free up channel capacity for them, there would a charge for this likely in the several millions of dollars.
4142 All this will need to be paid for by the third party ISPs before they had a single customer. In addition to these costs, of course, they would need to interconnect to the head ends and provide their own backhaul, routers and fibre networks.
4143 The cable network is a shared and limited resource. Splitting it up deprives the cable operator of valuable resources they need to compete with the phone companies, to innovate and to keep Canada competitive.
4144 In addition, the limited resources that could be made available to third party ISPs for a dedicated channel would leave them with a non-viable service.
4145 The technical issues involved in allocating 6 MHz channels to third party ISPs would involve a level of technical complexity which would result in failure.
4146 As we have discussed, giving channels to a third party ISP would create problems with spectrum, provisioning, operations, management and costs.
4147 Some of these problems are unsolvable. Others can be solved by having the cable operators provisioning the modems, managing the CMTS, the speeds and network characteristics and sharing an upstream channel. This of course would start to look a lot like TPIA.
4148 The current third party Internet access service by way of contrast involves the fair sharing of resources by third party ISPs and cable operators.
4149 This results in workable processes and greatly reduces costs for both cable operators and third party ISPs.
4150 TPIA allows multiple third party ISPs to use the cable network.
4151 It is for these reasons that the Commission rejected separate 6 MHz channels in Telecom Decision 2006-61. Furthermore, it is for these reasons that no country instituted a channel unbundling regime.
4152 Channel unbundling is a thoroughly impractical idea with overwhelming engineering, financial and operational problems. The Commission should firmly reject the proposal and dismiss it from future regulatory consideration.
4154 M. MESSIER : Merci, Tony.
4155 Abordons maintenant la question de la concurrence et de l'investissement.
4156 Le marché Internet de détail est extrêmement concurrentiel au Canada. Les entreprises de câblodistribution investissent des milliards de dollars pour moderniser leurs réseaux et les compagnies de téléphone en font de même. Il en résulte des services Internet meilleurs, plus rapides et à des coûts plus bas.
4157 Avant 2004, il n'y avait aucun service résidentiel offrant une capacité de 10 Mbits par seconde en aval.
4158 Cogeco fut l'un des premiers à introduire un tel service. Aujourd'hui, de tels services sont disponibles chez de nombreux fournisseurs et dans de nombreux marchés.
4159 En plus, Cogeco et d'autres entreprises ont lancé des services encore plus rapides, offrant jusqu'à 30 ou 50 Mbits par seconde en aval.
4160 La valeur des services à large bande s'est également améliorée. Le prix par mégabit par seconde a chuté dans l'ensemble. Les prix pour certains des forfaits les plus populaires ont diminué d'environ 5 pour cent annuellement depuis 2002. En tenant compte de l'inflation, tous les prix ont diminués.
4161 Quatre-vingt-dix pour cent des foyers ont accès à la fois par câble ou par téléphone à des installations filaires capables de distribuer des services Internet.
4162 Plus de 90 pour cent des Canadiens peuvent accéder à trois fournisseurs de services à large bande sans-fil. Et les nouveaux entrants dans le marché sans-fil élargiront davantage le nombre de concurrents dotés d'installations offrant des services Internet à large bande.
4163 Le Canada est parmi les chefs de file dans le domaine des services à large bande
4164 Le marché Internet de détail canadien n'est pas en retard sur celui des autres pays. Les Canadiens ont accès à un large éventail de fournisseurs de services offrant des services à des vitesses et à des prix rivalisant avec ceux de nombreux pays.
4165 Les services Internet fournis au Canada par les entreprises de câblodistribution offrent des vitesses similaires à celles disponibles dans les pays européens les plus performants.
4166 De plus, parmi les forfaits de services les plus populaires, les prix sont plus bas au Canada qu'en Europe.
4167 En plus des preuves que nous avons déjà déposées, notons qu'un rapport récemment publié pour la Commission européenne a également conclu que les prix au Canada sont parmi les plus bas.
4168 D'autres études prétendent que les services Internet au Canada sont relativement plus lents et les prix plus élevés.
4169 Ces études n'ont pas été menées avec rigueur. Les comparaisons de l'OCDE portant sur les prix et les vitesses n'ont pas tenu compte de la présence de plusieurs fournisseurs de services régionaux au Canada. Elles n'ont aussi examiné que les vitesses publicisées plutôt que les vitesses réelles. Enfin, elles ont examiné des données d'il y a deux ans, lesquelles sont maintenant périmées.
4170 D'autres études, comme le rapport produit pour la FCC par le Berkman Centre, s'appuient tout autant sur les mêmes données.
4171 L'analyse du Berkman Centre n'inclut pas plus de fournisseurs de services que l'OCDE dans ses comparaisons de prix et de vitesse. Ni Cogeco, ni Vidéotron, ont été considérées dans ces études, même si ces compagnies offrent des services Internet à plus haute vitesse.
4172 L'expérience internationale ne réussit pas à démontrer que de rendre obligatoire plus de services de gros dégroupés contribue à augmenter la pénétration des services à large bande.
4173 En effet, le Canada détient le niveau de pénétration des services à large bande le plus élevé des pays du G8.
4174 Plus de 70 pour cent des Canadiens ont un service Internet haute vitesse à la maison. Les preuves démontrent plutôt que les cinq pays ayant des niveaux de pénétration des services à large bande plus élevés que le Canada ont probablement atteint ces résultats parce que ces pays diffèrent du Canada pour ce qui est des facteurs socio-économiques et démographiques, tels qu'un plus grand nombre de personnes détenant des ordinateurs et une densité plus élevée de la population.
4175 De plus, dans certains pays, les gouvernements ont subventionné des fournisseurs de services à large bande.
4176 Plusieurs milliards de dollars sont investis annuellement par les entreprises de câblodistribution, dont 15 milliards dans nos réseaux depuis l'an 2000.
4177 La volonté qui soutend ces investissements est de fournir des services concurrentiels et alléchants à nos clients.
4178 Un exemple de premier plan est le gain de vitesse rendu possible par l'investissement consenti dans la technologie du réseau DOCSIS 3.0.
4179 Les entreprises de câblodistribution ont aussi procédé à des améliorations considérables dans l'infrastructure de leurs réseaux, par exemple, en rapprochant la fibre près des foyers, en divisant les pochettes et en augmentant la capacité du réseau fédérateur.
4180 Les entreprises de câblodistribution ne sont pas seules dans cette course à l'investissement dans l'Internet. Les compagnies de téléphone ont annoncé des investissements considérables dans une infrastructure riche en fibres.
4181 Les fournisseurs de services sans-fil sont également des participants majeurs, et aujourd'hui l'offre de services à large bande cible un usage résidentiel.
4182 Intervenir dans un marché déjà hautement concurrentiel, tel que l'est celui du marché Internet de détail, est nuisible.
4183 il y a très peu à gagner à essayer d'injecter plus de concurrence, en favorisant une entrée basée sur la revente de service, dans un marché déjà composé de plusieurs concurrents dotés d'installations.
4184 De plus, comme nous l'avons déjà démontré, l'obligation de fournir un service d'accès de gros impose des coûts sur l'industrie.
4185 Cela a un effet désincitatif sur l'investissement et peut même causer des distorsions dans le marché. Ces coûts outrepassent tous les bénéfices potentiels.
4186 En dernier lieu, nous sommes d'avis que le cas des services d'accès de gros à l'infrastructure Internet des entreprises de câblodistribution ne rencontre pas le test du Conseil relatif aux services essentiels.
4187 Le test du Conseil pour les services essentiels comprend trois parties. Échouer l'une ou l'autre des parties du test signifie que le service n'est pas essentiel.
4188 La première partie du test exige que ce service soit requis comme intrant par les concurrents. Or, l'accès à un canal dédié est, au mieux, une très faible priorité pour les fournisseurs de services.
4189 La seconde partie du test consiste à déterminer si le refus de fournir l'accès à un service entraînerait une réduction substantielle, voire même préviendrait l'instauration de la concurrence dans le marché Internet de détail. Or, ce marché fondé sur des concurrents dotés d'installation est très concurrentiel.
4190 Cet état de fait ne changerait aucunement même si l'accès à un canal dédié n'est pas autorisé. Un service d'accès à un canal dédié ne peut donc se qualifier comme un service essentiel.
4191 Concernant le service d'accès Internet aux tierces parties actuelles, la réalité du marché aujourd'hui démontre que la demande pour ce service comme intrant est très faible.
4192 La première partie du test n'est donc pas rencontrée. La seconde partie échoue, quant à elle, pour les mêmes raisons que cette partie du test n'est pas rencontrée dans le cas du service d'accès à un canal dédié.
4193 Le marché Internet est concurrentiel.
4194 Toutefois, si le Conseil conclut que l'accès obligatoire et conditionnel doit être conservé à court terme, alors l'approche réglementaire la moins intrusive serait de se fier au Service d'accès Internet aux tierces parties existant.
4195 Imposer aux entreprises de câblodistribution de fournir un service de gros fondé sur l'accès à un canal dédié serait néfaste pour les investissements supplémentaires dans le réseau DOCSIS 3.0 et le déploiement des services à venir.
4196 Notre présentation a déjà fait état des nombreux risques et coûts significatifs associés à cette proposition de service de gros.
4198 M. BRAZEAU : Merci, Michel.
4199 Mr. Chairman, there is no public policy rationale for a further mandated wholesale Internet regime.
4200 The Commission should achieve regulatory equity and symmetry only by deregulating wholesale access requirements for both the cable and telephone companies.
4201 This would be completely consistent with the Government Policy Directive.
4202 However, if the Commission insists on retaining some form of mandated access, then it must examine the current wholesale regulatory obligations for TPIA and ADSL to determine if they are symmetrical. The cable carriers believe that they are.
4203 Telephone companies provide unbundled loops and a bitstream service that can be used by wholesale customers to provide retail internet service. The bitstream service is offered in two forms called GAS and HSA by Bell. TELUS has equivalent services.
4204 The cable carriers, on the other hand, provide a bitstream service called TPIA. The ILECs argue that the cable carriers should also provide a service that mirrors the unbundled loop. They state that without this the ILECs are at a competitive disadvantage. They also argue, along with some ISPs, that an unbundled 6 MHz channel is equivalent to an unbundled loop. This argument is ludicrous and self-serving.
4205 The flaw with the argument is that the cable networks do not have loops to unbundle. The architecture, as explained earlier, does not have dedicated access to the premise. This is one of the technical reasons why the cable network has not been and could not be unbundled in this manner anywhere in the world.
4206 If by some technical wizardry, a dedicated 6 MHz channel could be provided to ISPs, they would be receiving far more than a loop. A loop serves one customer. A 6 MHz channel serves all customers.
4207 So if the Commission were to mandate the cable carriers to provide a 6 MHz channel, the ISP would receive a dedicated portion of the cable carrier's entire network for their exclusive use. This would impair the cable carrier's ability to compete and would create a significant inequity to the detriment of the cable carriers. Regulatory symmetry would then require that the ILECs provide dedicated capacity on their fibre network to every home to ISPs for their exclusive use.
4208 In addition, the cable network primarily serves residential customers and, for the most part, third-party ISPs do not use unbundled loops to serve residential locations. The cost of obtaining a co-location facility and paying for unbundled loops makes the provision of residential internet service unprofitable.
4209 As Primus has noted, many of the loops are unavailable due to no metallic continuity and the long loops that are available cannot achieve speeds more than 500 kilobits per second. In our view, the few residential customers served using unbundled loops are irrelevant in assessing any competitive equity between TPIA and ADSL.
4210 Turning now to bitstream service, HSA service is rarely used to provide residential Internet service. The wholesale rate does not allow any margin for this service.
4211 The wholesale service that is really used by third-party ISPs to provide residential services is GAS. TPIA and GAS are essentially the same service. Both are classified as conditional mandated non-essential. Both have the same costing rules, although TPIA is cheaper. There is complete symmetry between the cable and telephone companies' services, with the exception of cable operators' higher speeds.
4212 Some parties now have argued that TPIA is asymmetrical because of the restrictions on LANs, VPNs and multicasting. Cable carriers offer a residential Internet service to their retail customers and a residential TPIA service to wholesale customers. Neither retail nor wholesale customers can use LANs or VPNs because these are business services.
4213 Note that when we talk of VPN service, we do not mean the VPNs that allow end users to telecommute. This is allowed for both retail and wholesale customers. When we speak of VPNs, it is really a synonym for a LAN, a business service tying locations together. Of course, business services are not provided in a residential wholesale service. They are not provided as part of TPIA or as part of Bell's residential GAS service. Bell has a separate GAS tariff for business services with higher rates.
4214 Finally, TPIA has a restriction on multicasting. Multicasting is not an internet service. Instead, it is a broadcast video service that could be used by a broadcast distribution undertaking. It can cause severe congestion problems on a cable DOCSIS network. Note that it is not true, as Bell has claimed, that this restriction prevents TPIA ISPs from offering video. They can do so using unicasting, which is what Rogers does for its "Rogers on Demand" online services do.
4215 The restrictions on use are completely symmetrical between telephone and cable companies. The number of POIs that an ISP has to establish under TPIA to serve customers has been cited as a source of competitive inequity between cable carriers and ILECs. The mandated TPIA service provides access to the cable operator's customers at the head-end.
4216 Only this last mile facility from the head-end to the premise is actually considered an essential facility according to the Commission. If the Commission mandates a single POI per province, in effect it would be mandating the addition of an inter-city facility. Inter-city facilities are not essential. Therefore, modifying TPIA in this fashion violates the Commission's essential services test.
4217 It is true that some cable carriers provide interconnection at a regional POI rather than at the head-end. This is attributable to the cost and inconvenience they would otherwise incur should they provision POIs at each and every head-end. It should be noted, however, that very few ISPs have been critical of these regional POIs.
4218 The current POI locations and level of aggregation were approved by the Commission even though it acknowledged that there was some variation in the coverage areas between cable carriers.
4219 If the Commission is truly focused on regulatory symmetry and equity then the solution lies in relieving the ILECs of their respective aggregated ADSL services and only mandate a central office interconnection-based wholesale internet service. There is no policy rationale to mandate cable operators to provide wholesale bitstream services aggregated to a single point in a province in order to achieve equity.
4220 ISPs can, and currently do, achieve their own preferred level of aggregation by leasing commercially available transport services. This allows each ISP to tailor the level of aggregation to its specific requirements and market focus.
4221 There are significant costs that would be involved to provide higher levels of aggregation under TPIA. Modifying the cable network to support this would involve significant network redesign. The higher costs of providing this new network with greater aggregation would be borne by all TPIA customers, regardless of their requirements and business strategy.
4222 If any obligations are removed for the ILECs; for example, the speed matching requirements for wholesale ADSL, then the comparable requirements should be removed from TPIA. However, as we have repeated on several occasions, a much more desirable and symmetrical outcome would be for the Commission to recognize the competitive nature of the internet market in Canada and follow the policy directive by relying to the greatest extent possible on market forces and not impose even more restrictive and stringent regulatory requirements.
4224 MR. ENGELHART: Thanks, Jean.
4225 The next generation service, as defined by the ILECs, is what the cable carriers already provide. It is fibre rich and ultra fast broadband. We already provide access to that network.
4226 The cable carriers' next generation network is our DOCSIS 3.0 enabled network. Cable carriers have invested heavily to deploy fibre to the node and DOCSIS 3.0 technology in order to provide competitive, higher-speed services.
4227 The ILECs have insisted on symmetry, and they have also argued that they should not be mandated to provide access to their next generation network. In keeping with that symmetry, the cable carriers' next generation network should not have any mandated access.
4228 There is no risk of lessening competition if access to next generation networks is not mandated. The retail market is already competitive and becoming more so. Conversely, there is a risk that mandating access to next generation networks could lessen or prevent competition.
4229 In summary, we would like to answer the Commission's five questions from the letter of April 21, 2010. In response to the first question, telephone companies provide wholesale access to residential internet customers primarily with Bell's residential GAS tariff, or equivalent service for the other ILECs.
4230 This tariff is very similar to the TPIA service. The restrictions are the same, the service characteristics are the same, the costing rules are the same and the services are priced very similarly.
4231 The aggregation points are different with TPIA conforming to the Commission's essential facilities test, while GAS includes non-essential inter-city backhaul. The only inequity is that TPIA has provided speeds of 10 Mbps or higher for some time and GAS provides only 5 Mbps. We are not responding to the issue of CO-based ADSL access service, raised in the second question.
4232 Regarding the third question, TPIA already is a head-end-based wholesale access service. If the question is referring to a 6 MHz dedicated channel service, the record of this proceeding makes it clear that this service cannot be practically offered.
4233 There are overwhelming technical problems. There are no reasons of competitive equity to offer such a service. Neither TPIA nor a dedicated channel service is required under the Commission's Essential Facilities test.
4234 Regarding the fourth question, if aggregated ADSL services do not have mandated speed matching obligations, then TPIA services should not have these obligations.
4235 Regarding the fifth question, cable already offers next generation service, as defined by the telephone companies, and our TPIA services already offer wholesale access to this network. If no access is given to telephone company next generation services, cable carriers should not be required to give access to DOCSIS 3.0 speeds.
4236 THE CHAIRPERSON: Thank you for your submission.
4237 Currently, Mr. Engelhart, do you and Mr. Cope live in different universe? I started the week being blasted by Mr. Cope in no uncertain fashion for not providing regulatory symmetry and you come here four days later saying there is perfect regulatory symmetry and there is nothing wrong.
4238 What is going on here?
4239 MR. ENGELHART: Well, I mean, we provide 10 Mb per second access service on TPIA. If Mr. Cope wants symmetry with the cable companies why doesn't he increase his speed to 10 Mb per second?
4240 He tells you that it is impossible for phone companies to provide access to fibre to the node. We have been doing it for 10 years with TPIA. So I think Mr. Cope was trying to pull the wool over your eyes.
4241 THE CHAIRPERSON: These points that you went through and Mr. Brazeau just went through, each and every one -- first of all let the record show that only 3.4 percent of TPIA and GAS are being used. Everything else it's either cable or ILECs put together. Your share is 17,000, their share is 310,000.
4242 So I mean you were very -- how come there is such a wonderful disparity here if they are symmetric servers of equal -- and actually yours is better, yours is faster, as you have just said. Explain that to me.
4243 MR. ENGELHART: The main reason, Mr. Chair, is that the cable networks primarily cover residential customers.
4244 THE CHAIRPERSON: Yes.
4245 MR. ENGELHART: We don't cover business customers. Most of the third-party ISPs only provide business services so cable interconnection does them no good. We don't have the footprint to the customers they want to reach.
4246 All third-party ISPs that do provide service to residential customers also provide it to business customers. So they can interconnect with the Bell GAS service and they can reach bus and res, or they can interconnect with TPIA and reach only res. It's a pretty easy problem if you are a third-party ISP. You interconnect with GAS because then you get both and if you interconnect with both you have double the platform with no additional customers.
4247 That having been said, you heard TekSavvy when they appeared before you explain that they were embarking on an ambitious program of interconnecting with TPIA with all the cable operators.
4248 So the figures that you have cited may be changing in the next few weeks.
4249 MR. BRAZEAU: Just to confirm what Ken was suggesting, I have been in that role in the past as a reseller and the first motivating factor in buying wholesale facilities was the business market. Once you got facilities for the business market then the residential market became much more attractive if you could use the same wholesale facilities.
4250 That opportunity; those economies of scope do not exist as much for the TPIA market.
4251 THE CHAIRPERSON: Mr. Brazeau, you went to a great degree to try to tell me that the symmetry is there -- points of interconnection. You clearly can do one per province, as has been advocated for some people. You have the technical capability to do it, presumably do it for yourself.
4252 Why wouldn't you offer it to --
4253 MR. BRAZEAU: But that's exactly it. We don't do it for ourselves. What we are providing the TPIA customers is exactly the same level of aggregations that we offer ourselves.
4254 That's why you see a variety of aggregating --
4255 THE CHAIRPERSON: Explain that to me.
4256 You yourself, you and your case being Shaw, have multiple points of aggregation in the province?
4257 MR. BRAZEAU: Dennis, how many do we have?
4258 MR. STEIGER: Yes, that's correct. If we looked at Alberta for instance we would have core internet connectivity into multiple communities in different ways. We don't actually aggregate all of Alberta into one point. We would have multiple access points or different network connections in Edmonton, in Calgary, Red Deer; other places like that. We do, do a level of aggregation, but not provincially.
4259 MR. BRAZEAU: And that's exactly the same level of aggregation that we provide ourselves that we offer to our TPIA customers, exactly the same. And if we would have to change that, then we would have to reengineer our network.
4260 THE CHAIRPERSON: This is contrary to the information that I have received from my expert staff. Maybe I didn't understand the explanation.
4261 MR. BRAZEAU: But you have a chief engineer here.
4262 THE CHAIRPERSON: Yes.
4263 So just to be absolutely clear, Shaw, for its own purposes, has how many points of aggregation within Alberta?
4264 MR. STEIGER: At least two. Edmonton and Calgary would be our central aggregation points in those --
4265 THE CHAIRPERSON: Okay. Then are you offering two ISPs?
4266 MR. STEIGER: We have one TPIA ISP customer in Calgary, currently Cybersurf, and I believe we have just fired up a second one and three in the waiting, but we are providing aggregation points on a head-end and a regional basis.
4267 THE CHAIRPERSON: But if TekSavvy comes to you and says "I want to buy your services" and you have two, Calgary and Edmonton -- those are the only two I believe -- would you say "yes"?
4268 MR. STEIGER: Calgary and Edmonton would be aggregation for interconnection points to the internet which are not exactly aligned with TPIA POIs that we have constructed.
4269 THE CHAIRPERSON: I'm sorry, why wouldn't they be? Aren't we talking about internet resale here?
4270 MR. STEIGER: To build a TPIA network, to use exactly the same aggregation points as Shaw, we would have to build a private network for them from Edmonton to Calgary.
4271 THE CHAIRPERSON: Why? Why? Isn't that exactly what this is all about, that you are reselling to ISPs the same thing that you use at a rate that it has been prescribed? Why are you telling me if I had to do that I have to rebuild my network? I just don't get it.
4272 MR. STEIGER: If we aggregate to one point in Alberta we would have to rebuild our network.
4273 THE CHAIRPERSON: No. But you just told me that you aggregated two points in Alberta for Shaw. So why can't you do the same thing for TekSavvy? I just don't get it.
4274 MR. STEIGER: I believe we would. We don't have a request for TPIA service outside those two communities right now.
4275 MR. BRAZEAU: But those are the points of interconnection, so that's where we would -- those are the points we would provide to TPIA customers. That's how we do it. That's how we do it for ourselves and that is how we would do it for TekSavvy.
4276 THE CHAIRPERSON: So if we rewrite the TPIA rules that say that to the extent you aggregate for your own purposes you have to make that available to ISPs that would reflect the reality as far as you are telling me?
4277 MR. BRAZEAU: That's correct.
4278 THE CHAIRPERSON: And that applies to all the other cable companies, too?
4279 MR. ENGELHART: Well, Mr. Chair, as Mr. Brazeau said in his remarks, I think if you made a rule like that you would be violating the essential facilities test.
4280 THE CHAIRPERSON: That was not my question. That was not my question, Mr. Engelhart.
4281 I am tired of being misled by you guys by not answering my question. I asked a very simple, specific question because I'm trying to bring it down to very simple understandable notions.
4282 Are you providing to the ISPs what you provide to yourself? Mr. Brazeau said yes, he would do it and if I changed the rules to make it, it wouldn't make a difference because that actually is the reality on the ground. Now, is that the same reality for Rogers or not?
4283 MR. ENGELHART: No. We have interconnection at every primary hub. That's how our TPIA tariff works. We do not interconnect directly to the internet from every primary hub. We have our own regional aggregation points.
4284 THE CHAIRPERSON: What is the story with Videotron?
4285 MR. ROY: For Videotron we have five different regions and that's the way we had deposited the tariff and we already are confirmed in that.
4286 THE CHAIRPERSON: So you don't aggregate for yourself any differently?
4287 MR. ROY: No, and we even offer to certain third parties that were here yesterday even greater aggregation, depending on request. We discuss and negotiate.
4288 THE CHAIRPERSON: Okay.
4289 And Cogeco?
4290 MR. MacFARLANE: For Cogeco we have several interconnections in each province for the internet and it does not mirror the same way we interconnect for TPIA.
4291 THE CHAIRPERSON: And for Bragg?
4292 MS MacDONALD: For Persona we have four POIs providing service in Ontario. In fact in 2006 there was only one POI, and pursuant to a tariff application the Commission had encouraged Persona at that time to establish further aggregation points to serve those ISPs who wanted to be interconnecting in other communities.
4293 So in other words, Persona had been looking to arrange for interconnection just in Sudbury and the Commission had encouraged Persona at that time to build another POIs to serve those customers. So we filed tariffs to do so.
4294 THE CHAIRPERSON: I'm not quite sure what you said. Are you serving -- are you aggregating for yourself a different way than you do it for resale purposes to TPIAs or not -- to ISPs, sorry.
4295 MS MacDONALD: We do have the four POIs. Steve can speak to that.
4296 But there are certain communities that we can't serve ourselves without leasing facilities as well.
4297 MR. IRVINE: I could give a quick example if it would help. We have one area where in order for us to do further aggregation we would actually have to lease facilities from the TPIA provider itself in order to do further aggregation.
4298 THE CHAIRPERSON: No, I just wanted to know, basically, do you duplicate for resale what you do for yourselves? That's what I'm trying to say.
4299 The way you aggregate for yourself, is that something that somebody could purchase from you, too?
4300 MR. IRVINE: We are fairly close, but there are some differences because of our unique typology.
4301 THE CHAIRPERSON: Okay.
4302 MR. IRVINE: We have a lot of small head-ends that are scattered out in very --
4303 THE CHAIRPERSON: Mr. Engelhart or Mr. Brazeau, maybe you can then tell me why the restriction on use are different for you than for the ILECs. I have reams of material filed that shows me that this is unfair, that it's only for internet, there can't be any VPNs nor LANs, no multicasting, et cetera.
4304 Presumably that is historical at the point when you, as you point out, Mr. Engelhart, through CISC developed the standards, et cetera. But that was some time ago, et cetera.
4305 Is it still relevant today or could you not offer those services?
4306 MR. ENGELHART: The TPIA service was designed as a consumer or residential service. Our main retail service is a consumer service. We have, as we mentioned, fairly few business customers so the TPIA service was to mirror the residential or consumer service we offer to 1,000,000 1/2 customers. Obviously there are no LANs or VPNs with that because those are business services. Bell has a separate business GAS tariff with higher rates that allow you to have business services.
4307 So if you wanted to achieve equity you would not remove the restrictions on LANs and VPNs for us. We would have to create a separate dismiss tariff. We would have to then go around and find out which end users were in business locations, which we don't want to do. We would have to charge higher TPIA tariffs for that.
4308 So the problem I think is that you are comparing apples and oranges. You are comparing a Bell business tariff, which we don't have, with our residential or consumer tariff.
4309 THE CHAIRPERSON: That's your answer to Mr. Cope. Basically you are mixing apples with oranges. TPIA is a residential service. Yours is a business and so don't compare the restrictions that we have on our residential you would have on your residential, too.
4310 MR. ENGELHART: Correct. The other thing I would say to Mr. Cope is the third-party ISPs haven't been asking for it, only Bell has been talking about it.
4311 THE CHAIRPERSON: Well, that is not true. They certainly have been asking for here at this hearing this week loud and clear. I mean that part -- you were here. You are in the room.
4312 MR. ENGELHART: I have been here for every moment. I haven't heard it. I heard them say they wish we covered business services. I heard them say --
4313 THE CHAIRPERSON: They have said that they are not using you because you don't offer those services.
4314 MR. ENGELHART: Because we don't have business footprint. That's their problem. We don't go to the business locations.
4315 THE CHAIRPERSON: Okay, fine. Let's not quarrel. This may be an explanation. That's not what they said, but anyway.
4316 Tim, you have a whole host of questions and I have taken up too much of your time. Go ahead.
4317 COMMISSIONER DENTON: Good morning, gentlemen.
4318 As I hear your document there is a joke about middle age that after a certain age everything becomes immoral, illegal, impossible or fattening and in the case of the cable companies' greater access to third parties -- by third parties to increased or better services -- is immoral, illegal, impossible or asymmetrical.
4319 Would that be the substance of what you are telling us?
4320 MR. ENGELHART: Well, Commissioner, I would say that the cable architecture is sort of the Rodney Dangerfield of the telecom industry; we don't get no respect.
4321 No one at the Commission's technical staff understands it, the phone companies don't understand it, a few of the third-party ISPs do understand it, but most don't. So we have tried to explain it to you because it's just not like the telephone network that many people are familiar with.
4322 COMMISSIONER DENTON: Absolutely.
4323 Now, one of the things I'm trying to understand in this is you have -- your proprietary software is DOCSIS, is it not?
4324 MR. ENGELHART: Yes, sir. I mean, I wouldn't call it proprietary, I would call it the world standard, but other than that, it's called DOCSIS.
4325 COMMISSIONER DENTON: Yes, and it's available from CableLabs; is that correct?
4326 MR. ENGELHART: They pioneered it, but it's now used around the world by many different industries.
4327 COMMISSIONER DENTON: Can it be used by anyone?
4328 MR. ENGELHART: I will ask Matt to answer that question.
4329 MR. SCHMITT: Commissioner, I guess it depends on what you mean by "anyone".
4330 Certainly, it can be used on any cable network. It's a protocol designed specifically for hybrid fibre/coaxial networks. It's not software, it is a protocol, it is a set of interoperability specifications that define how cable modems and cable modem termination systems talk to one another.
4331 COMMISSIONER DENTON: So then this software, this protocol is entirely under the aegis of the cable companies to develop according to their own specifications; is that correct?
4332 MR. SCHMITT: The DOCSIS specifications are developed jointly between cable operators and the vendors that produce the equipment. CableLabs kind of manages that process, and what has actually happened to the DOCSIS specifications, as they mature, is they've actually been brought into other international standards bodies, such as the ITU. They also become managed by other bodies, such as the Society of Cable Telecommunications Engineers.
4333 COMMISSIONER DENTON: So then, basically, what you're telling me, and what I'm hearing, is that the specifications are developed by the cable industry and, therefore, the operating characteristics of DOCSIS are entirely within your control, to cause to happen or not, so that we're dealing with characteristics that are built in by you folk.
4334 MR. SCHMITT: I would say we certainly influence it. At the same time, we could -- in theory, we could write whatever we want into the specification, but that doesn't mean that anyone would build it.
4335 So an important part of the process of developing those specifications is determining what vendors are willing and able to build, and what cable operators could then purchase economically. So it's not going to be built -- if it can't be done economically, there's no reason for putting in the specification.
4336 So while, in a sense, yes, you're correct, we could write whatever we want into the specifications, from a practical point of view, that's not really the case.
4337 COMMISSIONER DENTON: I understand you. But, basically, engineers exist to solve problems at the cheapest possible rate, and DOCSIS satisfies the requirements of the cable industry to do what the cable industry wants it to do.
4338 MR. SCHMITT: I would say that's accurate.
4339 COMMISSIONER DENTON: Now, the question I have goes back to something that is of concern to Bell and others, which is the aggregation of end points, and this seems to be of some concern to the people appearing before us.
4340 Your argument to that is essentially that the aggregation is not an essential service and, therefore, you're under no obligation to do anything in that regard.
4341 Is that a correct understanding of what your position is?
4342 MR. ENGELHART: Yes, Commissioner.
4343 COMMISSIONER DENTON: I'm switching to the topic of the TPIA. You say at page -- well, you say that its development was in some measure involving competitors.
4344 How was this done, how was the TPIA developed?
4345 MR. ENGELHART: We retained an IT or a computer expert who wasn't that cheap and we got together with the third party ISPs. We exchanged network diagrams, we discussed what could be done.
4346 Our consultant then developed protocols, they were discussed, revised. There was a lot of vigorous arguments about what it should look like, what it would do, what it could do.
4347 Mr. Faccia came and gave the Cable 101 lecture to the ISPs, and at the end we came out with something we thought we could live with. We trialed it and we implemented it.
4348 COMMISSIONER DENTON: In what period was this developed?
4349 MR. ENGELHART: My memory says it was 10 years ago.
4350 MR. WATT: The initial decision that led to TPIA was about 1996. The discussions that Mr. Engelhart is speaking about I think took place over an extended period of time from '97, '98, '99.
4351 In '99 the initial tariffing activities took place and then there was a series of formalized CISC meetings arising out of that decision and this is in the so-called high-speed cable working group, the ad hoc working group under the CISC governance and those meetings took place throughout 2000, 2001, 2002.
4352 COMMISSIONER DENTON: So the claim being made is that third parties were involved in the development of this standard.
4353 Who was involved; do you recall?
4354 MR. ENGELHART: I don't think too many of them are in business now, but maybe Dave remembers them, I don't know.
4355 COMMISSIONER DENTON: That might be significant.
4356 MR. WATT: Okay. Some of the names that I think quickly come to mind, François Ménard who appeared here yesterday was heavily involved in the process. Elliot Noss, I forget the name of his particular two companies.
4357 COMMISSIONER DENTON: Yes.
4358 MR. WATT: Two COs. I mean, we could obtain -- we can go back through the records and give you the names of more of the companies.
4359 AOL was very much involved, they were extensively involved and I'm trying to remember the names of the people, but we can get that information for you.
4360 COMMISSIONER DENTON: I'd be interested in that.
4361 In relation to your traffic, would you describe for us how you currently aggregate the Internet traffic of the end customers of your retail high-speed Internet service for hand-off to or from the Internet?
4362 MR. ENGELHART: Thank you. I'll take it first.
4363 Thank you for asking that question because Mr. Faccia has been whispering to me that I didn't perhaps fully explain to the Chair the way we do it.
4364 So, I'll pass the mic to Mr. Faccia.
4365 MR. FACCIA: Thanks, Ken.
4366 So, the way that we aggregate our own retail traffic starts with the CMTS, so that's sitting in each head-end location.
4367 From that point on it's handed off at each and every head-end into what we call a core Internet network. That core network extends throughout our network. All of our head-ends are interconnected by that network.
4368 We then interconnect from that network to the --
4369 COMMISSIONER DENTON: So this is just a private IP connection that you have between your head-ends?
4370 MR. FACCIA: It's our own core IP network.
4371 COMMISSIONER DENTON: Yes, thank you.
4372 MR. FACCIA: For Rogers. We interconnect that Rogers network with other ISPs worldwide, so everybody across -- with us here today at the table, the ILECs and all other Internet providers through a series of other connections that are aggregated and reside in three or four different locations on our network.
4373 COMMISSIONER DENTON: So you're saying that you connect to all other cable operators, for instance, through this IP-based system?
4374 MR. FACCIA: Yes. So, through -- our core network has peering points they're called and at those peering points we interconnect with other cable companies, other ISPs including the ILECs and we interconnect with the worldwide web through those peering points.
4375 COMMISSIONER DENTON: Okay. So, are these private peering arrangements? I mean, this is not the public Internet, these are your private peering arrangements?
4376 MR. FACCIA: We have a combination of types of transit and peering that are used --
4377 COMMISSIONER DENTON: Okay, yes.
4378 MR. FACCIA: -- that would be the same case for all Internet providers. So, we have private peering connections with certain providers including cable, ILECs and others. We have public peering points that we interconnect with, and then we have actual transit services that we buy from other ISPs, larger ISPs.
4379 COMMISSIONER DENTON: Okay. Next question, slightly different topic. What impediments are there to the offering of higher speed interconnections such as Gigabit, ethernet for competitors? GigE, I hate to use the acronyms.
4380 MR. ENGELHART: We have had a couple of requests for GigE interconnections and we have agreed to it at Rogers. I can't speak for the others.
4381 COMMISSIONER DENTON: Would the others care to speak to this question?
4382 MR. STEIGER: We would be in a position to support a GigE POI interconnect if that was requested by the TPIA customer. Generally, the TPIA customers, that is an excessive amount of bandwidth that they would have to pay for, so they tend to go with smaller connections.
4383 COMMISSIONER DENTON: Mr. MacFarlane?
4384 MR. MacFARLANE: For Cogeco, we're currently in discussions and we're not opposed to it either.
4385 And then just to make one distinction about what Tony had said about the way they interconnect, the way the Cogeco does it is we regionally backhaul CMTSs to put them onto our back bone and then one unique distinction between Cogeco and others perhaps is that we do have two distinctly separate networks, one for Quebec and one for Ontario that operate autonomously, put it that way.
4386 COMMISSIONER DENTON: Okay. Is that of political or of technical significance?
4387 MR. MacFARLANE: Legacy technical.
4388 COMMISSIONER DENTON: All right.
4389 MR. MacFARLANE: They can be combined, but there's not a lot of advantages to doing so, so we keep them separate.
4390 MR. IRVINE: For Persona, to answer the question, we have no objection to GigE POIs and we have two GigE POIs I believe in place today.
4391 MR. BÉLAND: And for Vidéotron, it's on the record of the proceeding that we already provide GigE interconnection facilities with at least two TPIA customers.
4392 What we do in those cases is we install the full Gigabit facility, but then we step up their use of it in 100 Megabit intervals.
4393 COMMISSIONER DENTON: Okay.
4394 MR. BÉLAND: So, we have two customers that are presently operating that way.
4395 COMMISSIONER DENTON: Thank you, gentlemen.
4396 Obviously under the category of asymmetrical comes the issue of the restrictions on use that are imposed by TPIA against virtual private networks, LANs and multicasting.
4397 Is this -- and considering the use of -- well, basically considering the notion that though your services are designed for residential, a lot of people may be operating businesses out of homes, the question arises as to whether these kinds of restrictions make sense, in a sense, even from your own point of view.
4398 I'd like you to address these questions; the relevance, pertinence and desirability of maintaining these restrictions in the future having regard for where the economy is evolving.
4399 MR. ENGELHART: Thank you.
4400 Anybody who's using a business from their home can use TPIA. So, a third party ISP can provide that service at the same rate to a home business, to a small business, anywhere that's on our footprint they can have access to it at the residential rate.
4401 So, in some ways, in a very direct way, we are being fairer to the ISPs than Bell is because they have a business GAS tariff which is $6 a month higher.
4402 So, it's a good deal for the ISPs because they can serve business customers who want an Internet connection.
4403 Now, if they want something else which is not an Internet connection but a business service, no, TPIA is not a good vehicle for that. It's not set up to be a business service, nor is our retail service. All of our retail consumer customers have the same restrictions.
4404 So, that's not what it's designed to do. Our retail customers can't put servers on their retail high-speed connect. That's a restriction on use in our AUP document, it's not designed for business.
4405 COMMISSIONER DENTON: Mr. Engelhart, I hear you saying that and I acknowledge that that is your policy.
4406 Is the policy predicated on some kinds of because the charge is not high enough or because there are technical limitations of the technology that make TPIA not appropriate?
4407 I can see an argument, for example, for charging them more which this Commission has, you know, essentially said yes to, but restrictions have to be predicated on some kind of valid reason and I haven't got that yet from you.
4408 MR. ENGELHART: Thank you very much.
4409 So, in the case of LANs and VPNs it is really a rating issue. We rate the service in accordance with a typical residential customer or a typical profile of residential customers, we don't rate it for people connecting a bunch of offices together or some other business purpose.
4410 So, it's primarily a rating issue there.
4411 Multicasting is very much a technical issue. We can't do multicasting on our Internet network for retail customers or anyone else.
4412 Multicasting refers to a type of video delivery which is like cable TV, it delivers video signals, the same picture to every home. That's not the way ISPs deliver video.
4413 If you look at our Rogers-on-demand online service we use unicasting, which is the way that Jump TV or anyone else would do it.
4414 So, our network doesn't do multicasting. We could remove the restriction on use and you still couldn't do it because that's not what our network does, nor do we think that that is what an Internet access service is. It's a BDU service, not an Internet access service.
4415 COMMISSIONER DENTON: And the other restriction, the fourth restriction was that it was only to be used for access to the Internet as opposed to, say, some private IP-based configuration.
4416 You say that the TPIA tariffs prevent any use other than for the Internet. Is that a rating question or a technical question?
4417 MR. ENGELHART: I would call it neither rating or technical but, rather, regulatory.
4418 So, the Commission has determined that we are an incumbent or co-incumbent in the Internet access space. The Commission's rule for as long as I can remember is new entrants don't have to provide unbundled access facilities, only incumbents do.
4419 For example, we don't have to provide unbundled access to our telephone service because we're not an incumbent. So, we have been -- the Commission has determined that we're an Internet incumbent and we've been ordered to provide an unbundled mandated access service for Internet, but we haven't been ordered to provide it for other services.
4420 COMMISSIONER DENTON: I would like to ask the other people on the panel if they could go through the VPN, LANs, multicasting and for use only for the Internet restrictions to see if they have anything different they would wish to add to Mr. Engelhart's answers.
4421 MR. MacFARLANE: For Cogeco I think that the answer pretty much mirrors what Ken had to say.
4422 I will say that we're probably even more unfair to our own internal sales people than we are to TPIA because we don't allow business connections, residential customers to use it for business at all. So, we sell them a business tariff at -- a business product at a higher rate that has some of the features that you're talking about. It doesn't go to the multicast area, but it does allow for other things.
4423 COMMISSIONER DENTON: So, your solution basically was to get a business TPIA and with the exception of multicasting and --
4424 MR. MacFARLANE: We don't have business TPIA tariffs, but we do have a business product that we offer to businesses.
4425 So, if they want to host a server or if they want other features, they can buy a business service from us.
4426 COMMISSIONER DENTON: Okay. Thank you.
4427 MR. MacFARLANE: At a higher rate.
4428 MR. BÉLAND: From Vidéotron's perspective, what all of those restrictions fundamentally have in common is returns again to the fact that the cable network is a shared network and it's traffic management issues.
4429 These are more sophisticated services that have impacts on the traffic of other users. Allowing someone to be running a LAN has impact on other users over the shared network.
4430 Allowing someone to connect servers to their cable service has an impact on other users of the service. We are -- and managing those impacts is very complex.
4431 As cable carriers, we're getting into that space. Vidéotron, similar to Cogeco, has business high-speed offerings that permit such things as static IP addresses, connection of servers, LANs, that sort of thing.
4432 So, it's a space we're getting into. We're very much a new entrant, a small player in that space. We'd like to grow, but too that in itself is already a big enough challenge.
4433 To conceive of letting a third party then start trying to offer those services over our shared network which we must manage raises very substantial concerns and that's fundamentally why those restrictions remain in place.
4434 COMMISSIONER DENTON: Mr. Brazeau?
4435 MR. BRAZEAU: I would just echo what Dennis has just said and just add simply that you call them restrictions but, you know, they apply to all of our customers.
4436 So, we don't see them as restrictions, it's just the way the product has been configured.
4437 And it seems that you have a problem, I'd say, to the fact that we are different than the telephone companies. As Ken alluded to earlier, that's the Roger Dangerfield syndrome here that it seems like you want us to be just like them and when we say, well, we can't be like them, and you ask us why we can't be like them, so...
4438 But coming back to the service, I think we apply the same rules to our own customers as we do to TPIA customers.
4439 MR. STEIGER: Jean, I would just like to add that the ability to support the private networks or LANs or multicast is not a fundamental part of what DOCSIS is about. Those are -- multicast, for instance, is a technology. The application is broadcasting video.
4440 We currently do not support the technology of multicast for ourselves, for TPIA customers or for retail customers. It would require reconfiguration, possibly a redesign of our networks just because it was never meant to carry that type of a service.
4441 On the private LAN side, at least one of our CMTS vendors does not support any kind of private LAN or VPN. There are some CMTS vendors that claim to, but we've never even validated that because it's not part of our service.
4442 MS MacDONALD: And for Persona, similar to Shaw, we don't pass through those -- and similar to the other carriers, we don't pass those services through to our own retail residential customers and we would also have to reconfigure our networks to provision a LAN service.
4443 And Steve can offer any other comments with regard to that.
4444 MR. IRVINE: I just echo what Dennis said. As far as it's not something that we've -- we think is truly possible in our existing platform. We've got limitations with the architecture.
4445 When we have had requests for private services, we've looked at those opportunities and got several examples where we've built fibre out to business customers to provide those types of services, but it's not something that we offer as part of our cable-based business product today.
4446 COMMISSIONER DENTON: Thank you.
4447 COMMISSIONER DENTON: I'd like to talk about future technologies.
4448 And I guess the first question I'd like to ask is whether you have any plans to migrate away from DOCSIS technologies?
4449 MR. FACCIA: At this point we have no plans to move away from DOCSIS technology. It is, you know, the next-generation network for cable operators, 3.0 as we said earlier is that next generation and we believe it's going to position us to compete with the ILECs as they deploy fibre to the home.
4450 COMMISSIONER DENTON: We've seen the term radio frequency over glass. Does that have -- what is it and does it have any implication, are they quite independent of DOCSIS?
4451 MR. FACCIA: They are independent. RF over glass means that as we start to deploy fibre directly to the home, that the same service platforms including the DOCSIS platform will continue to be used to deliver an equivalent DOCSIS service over that glass, or the fibre to the home.
4452 COMMISSIONER DENTON: Now, in relation to next-generation services, my impression is that it's sometimes a Telco or communications buzzword that covers over many sins.
4453 NGNs for you consist of and comprise what; what are they really?
4454 MR. FACCIA: I'll start off I guess.
4455 I guess we can go back to our deployment of fibre to the node and even beyond that, fibre to the curb access technology in our cable network. So, essentially that's driving fibre deeper, deeper into the neighbourhoods and closer and closer to the homes.
4456 So, by Bell's definition, some of the other ILECs, that is next generation.
4457 In addition to that, we have DOCSIS 3.0 that we've spoken about which we believe is truly a next-generation network.
4458 COMMISSIONER DENTON: But why so? I mean, apart from just being a sequence of technological innovation, why is it -- what is so radically important or interesting about it?
4459 MR. FACCIA: Well, it dramatically increases the capabilities we have to deliver higher and higher speed services both upstream and downstream services to our customer base.
4460 COMMISSIONER DENTON: Well, you know, you're sitting on a technology of coaxial cable that has a thousand, 10,000, a hundred thousand -- I do not know the figures -- but very significant increase of capacity over that which is available to the Telcos and the Telcos are playing catch up.
4461 Do you see yourselves as having the same incentives to put fibre out closer and closer to the home as the Telco industry?
4462 MR. FACCIA: Again I'll start off and ask my colleagues to join in, if they wish.
4463 Yes, I believe that in order for us to continue to drive higher and higher speed capabilities that we need to do as we mentioned earlier, a lot of segmentation activity to drive the number of homes served on a node down to a lower and lower point to increase the capacity available to each home sitting on those smaller nodes.
4464 So, in order to do that, we've got to drive fibre deeper into the network, driving out fibre to the curb and at some point, in some instances, fibre to the premises in order to get that capacity to a smaller and smaller set of homes and users on that.
4465 COMMISSIONER DENTON: Because basically supplying bandwidth is the game.
4466 MR. FACCIA: Yes, I'd say so.
4467 MR. BRAZEAU: Commissioner Denton, I'd just add that I don't think our investments are really driven by what the ILECs are doing, they're driven by what our customers are demanding.
4468 So, as long as they keep demanding for more services, better services then, you know, we will continue to invest and continue to provide those services and those enhancements to the network.
4469 COMMISSIONER DENTON: I mean, I agree, I think that's exactly, customers demand higher and higher bandwidth and you're both responding, but one of you's sitting on a very considerable advantage at the moment.
4470 MR. ENGELHART: Yes. I mean, just to sort of supplement what Tony's saying and I think to respond to the implication in your question, the sort of paradigm shift, if you will, for us happened in, you know, the mid-90s when we went from one-way networks to two-way fibre rich networks. I guess you could say the early 90s was when that started.
4471 So, that's when we started spending money like drunks and we spent billions and the Ebit was not increasing and the market bailed on us, so we went through all those crises then in the 90s.
4472 And then starting, you know, in this decade things started to get better and we started to get revenues associated with those mass investments and now I think as reflected in your question, we're kind of doing more of the same. We've got a lot of fibre out there. Fibre is very deep in our networks and, as Mr. Faccia said, we're always making it deeper. But it's pretty deep.
4473 We have a fibre-to-the-node infrastructure, we're going fibre to the curb in a lot of places and that enables us to then bolt the channels together and do things back in the head-end to increase capacity. And so that's our next generation.
4474 COMMISSIONER DENTON: What I'm hearing from you saying, Mr. Engelhart, and others -- and I'm not trying to be argumentative, I'm just saying that as I hear it, bandwidth is the key, being able to offer -- you haven't yet imagined the services, but you know as well as anybody knows that being able to offer more and more bandwidth to customers is the key agency of innovation and new services.
4475 Is that correct?
4476 MR. ENGELHART: I'd certainly agree with you that bandwidth is very important, but if you listen to our President, Mr. Mohamed, in his speeches he also says that customization is very important.
4477 So, the ability to personalize services so that it's what customers want which involves a lot of IT expenses. So, we are certainly doing more than raw bandwidth increases, but that is certainly a key part of the strategy.
4478 COMMISSIONER DENTON: Anyone else?
4479 MR. ROY: One benefit that we have from driving what we call deep fibre is availability of the network and minimizing impact on the network.
4480 We stated as a fact that the cable network plant is a shared network. So, I'll take an example is, in your house and it happens that you disconnect your set-top box and you start doing funky things in your house with a chainsaw, a cutter and a motor. You can impact our network.
4481 So, by pushing deep fibre, what we're doing is not only enabling services, but we're at the same time making sure that the quality is there.
4482 So, that for us has been very good. We're talking about the cable companies' reputation.
4483 We've grown very much and this deep fibre helps us making sure that there is smaller nodes, less impact and this shared spectrum needs to be managed with, I call this, tender loving care.
4484 Our technicians that rides in the truck that you see around the house is that going to a pole, if they start opening those boxes and they start playing with the box in the wrong way, they will affect a whole node. And that's something that we will not accept.
4485 So, this sharing of bandwidth and these impacts on the network are important. So, bandwidth plus I would say availability of the network is very important for us.
4486 MR. MacFARLANE: From a Cogeco --
4487 MR. IRVINE: Mr. Chairman --
4488 COMMISSIONER DENTON: Sorry, go ahead.
4489 MR. IRVINE: Sorry. Steve Irvine from Eastlink. I'll just make some comments.
4490 I think the Telcos have done a good job trying to make everyone feel sorry for them. I would say we shouldn't feel too sorry for them because I do think they're competing effectively.
4491 I think if -- certainly talk about, you know, my home market in Nova Scotia, they're offering 13 Meg Internet speeds, they're offering TV-based services over DSL, they've got a very, you know, aggressive bundle.
4492 And I think on the cable side, you know, we still have to -- we've got -- I absolutely agree, I think we've got an advantage. We still have a lot of limitations on the upstream speed.
4493 We've had several examples in Atlantic Canada where Bell Aliant are offering fibre-to-the-home services, they've announced in Fredericton, Saint John, small areas like the Miramichi, they've just announced fibre-to-the-home service in Sydney, they're going to be offering 170 Meg service in the Cape Breton area.
4494 So, we shouldn't feel too sorry for the Telcos.
4495 MR. MacFARLANE: From a Cogeco viewpoint, I think it's important to remember the limitation on the upstream. Today, in Oakville, I have a competitor in Bell that has a faster product than I do in the upstream.
4496 The other thing to remember is that there is still a satellite product out there that we are competing against. So this vast amount of bandwidth that people allude to is competing against more than just twisted copper. There are lots of HDs that are coming out over the air, over their satellite service, that I have to compete against, and I have to put a competitive product in.
4497 So that has to be remembered.
4498 And to go back to the RF over Glass issue, an interesting way of looking at RF over Glass is, those nodes that serve, currently, 500 customers today, RF over Glass is one node per customer. It's just the node at the side of the guy's house.
4499 So it's still HFC, it's still DOCSIS, it's still the same technology that we are using today, it's just small nodes.
4500 COMMISSIONER DENTON: I am suddenly being hit by a frying pan of the obvious, which is that if your shared network architecture, which I hear you arguing is inherently less useful for third party access, is that not an argument that asymmetrical obligations between the phone company and the cable company, in terms of third party access, would be, essentially, an architecturally sound idea?
4501 MR. ENGELHART: I don't think we said that you can't provide third party internet access with a shared network infrastructure.
4502 TPIA does the job. It does the same as the Bell GAS service, which is really what they use. Really, what the third party ISPs use is GAS.
4503 Now, it does not measure up well against unbundled loops. The unbundled loop business for the residential internet side of things is a complete dud on the phone company network as well, because every time they put in fibre to the node or fibre to the remote, there is no metallic continuity, and there you go, you can't have the service.
4504 Oh, they can give you a 5,000-metre long copper loop, with so much noise on it that you can barely get 500 kilobytes.
4505 We have been in that business. Rogers bought Call-Net, and you can use the loops for voice, they work just fine. You can do things in the business segment, but on the residential internet side, the unbundled loop business is terrible. It doesn't really work and, to our regret, having bought that business, we are retrenching from it.
4506 So for what the phone companies actually offer, we have come up with a way of making the cable network better, because we offer higher speeds.
4507 COMMISSIONER DENTON: Anyone else?
4508 MR. BÉLAND: One major difference between a copper loop and a cable plant is, when a signal comes out from the head end, and it is transmitted over the signal, we call it hybrid -- HFC, so hybrid fibre coax.
4509 What we do is, over fibre, we will send a signal out, it will be powerful, and the coax nodes will reduce in size, and it will be delivered in a house.
4510 I am talking through a microphone so you can hear me well. If I turn off my microphone, you will probably need to make sure that you hear me better, if I go down in levels of signal.
4511 In our cable plant we are able to do this with copper plant, when that doesn't always come out, and now it's starting to be more and more known by customers.
4512 It's the same thing as me using a microphone. If I am in a central office and I shoot a signal out, and it goes 5 klicks, the signal at the end will not be good enough, what is required to have the speed that we are able to provide on our RF network -- the distance from the loop.
4513 So that has to be very clear. The central offices that are more than 1 kilometre away, basically you need to have these remotes to have quality.
4514 That's a major difference between our network and the telco network, they put these nodes or additional equipment, where we just put amplifiers and combiners, fibre to coax.
4515 MR. BRAZEAU: Just very quickly, the other key difference is -- we talked about speed, but there is also price. TPIA prices are generally lower than the GAS residential prices.
4516 COMMISSIONER DENTON: My last question involves some speculation, but basically, once you get -- it has been speculated that once you get fibre into the home, the game is over. I mean, there is so much capacity on it that no one will ever need any other kind of service.
4517 Is this the game we are going for? Is it the first one to get fibre to the home wins, and wins everything?
4518 MR. ENGELHART: I will give you my engineering opinion first, and then let the other engineers jump in.
4519 MR. ENGELHART: You have to remember -- and I am sure you know this, Commissioner Denton, but people have to remember that the fibre doesn't go into the TV, it doesn't go into the telephone, it doesn't go into the computer. There is always a piece of metallic cable. Maybe that piece of metallic cable is one foot long, maybe it's ten feet long, maybe it's a block long.
4520 The mythology of fibre to the home is, in some ways, mythology. Getting fibre to the curb, or getting it to the block, is almost as good. You can do almost as much.
4521 So the marketing allure of fibre to the home, I think, has been overblown. You need deep fibre.
4522 In our case, that critical moment is when you don't need any more amplifiers, which Mr. Roy just described.
4523 You take the amplifier out of the cable network and it's a wonderful thing, because it introduces noise, and whether you still have to go half a block or a block with metallic cable is not that big a deal.
4524 COMMISSIONER DENTON: Anyone else?
4525 MR. STEIGER: Perhaps I could fill that out a little bit more.
4526 You refer to fibre to the home as being an end game for cable companies and ILECs. That is exactly how it was described, it is a myth.
4527 For us, fibre to the home is essentially a replacement for the coaxial cable network, and, yes, in theory that can deliver more channels and more bytes; however, the electronics on both ends of that fibre are really what govern the capacity.
4528 Initially, when fibre to the home will be deployed with RFoG, it will have slightly more capacity than we have today, but only slightly. The upgrading process will actually never end.
4529 MR. MacFARLANE: From a Cogeco perspective, I would like to go back to your asymmetry issue. Perhaps there will always be technical asymmetries between us and the telco, but where I personally find it difficult is when there are asymmetries allowed at the speed-matching level.
4530 So if I am forced to offer speed-matching, I think it is important that the telco be forced to offer their high-speed services to wholesale as well.
4531 To speak to fibre to the home, I think there is a whole lot of life left in DOCSIS 3.0. I can't envision a period where Cogeco Cable doesn't have the DOCSIS technology deployed in its network.
4532 Sure, like all of my colleagues, fibre is going to go deeper and deeper, and eventually, in some neighbourhoods, it will probably touch the side of people's homes, but DOCSIS is going to be here, and it has a great amount of capacity.
4533 And I agree with everybody that fibre to the home is a marketing myth, as to whether or not it is better than the current technology we are using.
4534 COMMISSIONER DENTON: That would indicate that if you have DOCSIS in the home, you basically feel that you have all the capacity you need to offer a very, very high level of bandwidth to the home, and really that fibre to the home is superfluous in that case?
4535 MR. MacFARLANE: In the territories we serve, for us to do something like a fibre to the home build is a non-starter from an economic standpoint.
4536 And DOCSIS provides us with what we believe is a competitive response to the telcos.
4537 COMMISSIONER DENTON: Thank you.
4538 I'm done.
4539 THE CHAIRPERSON: Thank you.
4540 First of all, Mr. Brazeau, let me reassure you that we don't want you to be like ILECs. We realize that there is different technology, and what we are trying to make sure is that it's roughly equivalent. What we are trying, through our questioning, to find out is whether -- you know, there are technological differences -- whether you are taking advantage of a regulatory loophole or if it is the failure of us to understand the differentiation.
4541 We have a lot more questions for you. We will break now for lunch, and we will resume at two o'clock. Thank you.
--- Upon recessing at 1240
--- Upon resuming at 1405
4542 THE CHAIRPERSON: Okay, let's resume from where we left off. I hope that everybody had a good lunch.
4543 We have some more questions for you, Mr. Engelhart and companies.
4544 Candice, why don't you start.
4545 COMMISSIONER MOLNAR: Thank you.
4546 I will quickly go to my notes. First, I have a couple of questions of clarification regarding your opening statements.
4547 Before I get there, I had written myself a question on TPIA, just to clarify. Do you provide it today at the highest available upstream bandwidth as well as the highest available downstream bandwidth?
4548 MR. STEIGER: The TPIA service exactly mirrors the retail internet service of Shaw Cable, so yes.
4549 COMMISSIONER MOLNAR: Yes, and nobody would say different, so everybody does...
4550 MR. ENGELHART: We recently introduced a couple of higher speeds in the retail service. Until a few weeks ago we had not had any wholesale requests for those speeds. We now have those requests, and we have said that we will prepare a tariff for that.
4551 COMMISSIONER MOLNAR: So your normal process with TPIA would --
4552 MR. ENGELHART: Oh, I'm sorry, was your question about upstream, upstream only?
4553 COMMISSIONER MOLNAR: Right.
4554 I assume that you are matching speeds normally on the downstream, what tends to be the focus, but I know that your constraint is upstream.
4555 MR. ENGELHART: The same answer.
4556 COMMISSIONER MOLNAR: The same answer.
4557 Just for clarity, do you normally roll out your retail service and then wait for demand before you tariff the wholesale service?
4558 Is that what you just said?
4559 MR. ENGELHART: Yes, that's what we do.
4560 COMMISSIONER MOLNAR: What kind of timeframe is the difference, then, between when you roll it out...
4561 You said that you now have a request, so it's simple tariffing and there is nothing else you need to do?
4562 MR. ENGELHART: Right.
4563 COMMISSIONER MOLNAR: I know that Commissioner Denton, as well as the Chair, talked about this a little bit, but I still wasn't quite clear.
4564 On page 24 of your opening remarks you say that, with your existing TPIA service, competitors are able to use it. They can use unicasting, which is what Rogers does with its Rogers On Demand online services.
4565 So you are saying, basically, that for an ISP who would choose to have a video product, the TPIA service is capable of supporting that?
4566 MR. ENGELHART: Yes.
4567 COMMISSIONER MOLNAR: Then I would turn to paragraph 94 of your opening remarks.
4568 I am not sure what you mean by the statement here, where you say "only mandate a central office interconnection based wholesale internet service."
"If the Commission is truly focused on regulatory symmetry and equity, then...[relieve] the ILECs of their respective aggregated ADSL services and only mandate a central office interconnection based wholesale internet service."
4569 Could you explain to me -- I didn't understand how that addresses the issue of regulatory symmetry.
4570 MR. ENGELHART: Right now Bell offers an aggregated GAS service, so they have a point of interconnection at one place in Ontario and Quebec, and the ISP can pick it up there.
4571 We have a TPIA service, functionally very similar, but the point of interconnection is at the primary hubs -- each of our primary hubs or cable head ends.
4572 The point we were making is, the essential services definition or test really requires that last mile to be provided. That is the essential service. So we are satisfying that definition, but the two services are not symmetrical or equal.
4573 If you want symmetry, a solution to that would be to say to the phone companies: You don't have to backhaul GAS to a central point in Ontario and Quebec, you can allow an aggregated ADSL GAS service to be accessed at the point of interconnection.
4574 And then, presumably, Bell would sell you optional transport services that could get you to a point of interconnection, if you wanted.
4575 So you would disaggregate GAS, if you will, or bring GAS back down to the central office level, rather than having a centralized point of interconnection. That would involve parity between cable and telephone.
4576 It is probably nothing that the ISPs have been asking for, but if symmetry is your objective, then that will get you there.
4577 THE CHAIRPERSON: Why downgrade rather than upgrade? Why not upgrade you rather than downgrade the ILECs?
4578 MR. ENGELHART: As I said, that is mandating the provision of inter-city facilities, which have been not essential facilities for several years.
4579 It's fine if they -- I understand that they want mandated access to inter-city facilities, but they can buy them from Bell or us or Unitel. There are lots of places they can get them.
4580 MR. BRAZEAU: And we have also mentioned that there would be costs involved and redesigning our network in order to allow for a provincial point of interconnection.
4581 COMMISSIONER MOLNAR: Wouldn't it be fair to say that a central office based interconnection, as it has been defined in this proceeding, which provides, essentially, wire speed at the central office, would be much more equivalent to the 6 megahertz service you are saying is not feasible or practical for you folks to deliver?
4582 MR. ENGELHART: I think you are right. I think that's what I heard Bell saying.
4583 What we are talking about here in 94 is not that, it's GAS, but with a POI at the central office.
4584 COMMISSIONER MOLNAR: So something nobody wants.
4585 Because we have heard the competitive ISPs saying that what they want at a central office is to be able to manage the quality of service, manage throughput, no ITMPs and so on.
4586 MR. ENGELHART: I think, if you gave them a GAS at the central office with speed-matching, there might be some real interest in that.
4587 COMMISSIONER MOLNAR: One more question of clarity. In paragraph 108 you are talking about your next generation services and DOCSIS 3.0, and the fact that -- and I heard the conversation this morning that increased speeds are based, as they are in telco networks, really on the combination of driving fibre closer to the home and then enabling electronics that enable these higher speeds.
4588 Can you tell me, is there some point at which DOCSIS 3.0 enables upload or download speeds that aren't otherwise capable simply by driving fibre closer to the customer?
4589 Is there a tipping point?
4590 What does DOCSIS 3.0 enable that you can't get otherwise?
4591 MR. ENGELHART: Tony will answer that.
4592 MR. FACCIA: DOCSIS 3.0 is the technology that is required to bond channels together and provide higher throughput speeds, both downstream and upstream.
4593 The fibre, on its own, would not do that.
4594 COMMISSIONER MOLNAR: I understand that. That's why I am asking, what is it that you get?
4595 I am going to use the term "pair bond", and I know it's not the right term for your technology, but when you bond this together, what is the upload capability that is not capable if you are using the earlier version of DOCSIS?
4596 MR. FACCIA: Okay. A single 6 megahertz channel without DOCSIS 3.0, so in the current DOCSIS 2.0 deployment, has a channel that allows up to 38 megabytes per second down, and on the upstream there are some variations, depending on how the cable plant has been engineered and maintained, but there is a channel which is about 10 megabytes up.
4597 Now, those capacities, 38 and 10, have to be shared amongst all the homes and subscribers in a particular neighbourhood. So it's not that we can offer a 38 meg service on that channel. The channel is on a shared basis able to deliver 38 megabit or second.
4598 3.0 takes those channels that, say, are at the equivalent rates of 38 and 10 and bonds them together to enable -- you know, if they are bonding three channels together that is 100 Mb-plus service to be offered and so when we are able to start bonding upstream channels than we are able to offer a higher upstream throughput.
4599 COMMISSIONER MOLNAR: Okay, thank you.
4600 Just to be clear, so without DOCSIS 3.0 you can have upstream capacity capabilities of up to 10 megs and, as far as I know in Rogers case, as a for instance, you offer 2 megs as your highest upstream?
4601 MR. ROY: One thing that's very important is up to 10 is we will not use a channel at 100 percent because then it becomes dedicated to one customer so there is a capacity and we call that adding capacity and there is throughput and we will manage throughput versus capacity. What DOCSIS 3.0 gives us is both worlds; more capacity and when we bond we have additional throughput and this is very important. We will not -- if it's 10 or if it's 38 in the downstream we won't give a 38 service because we said the network is shared. So we would rather have additional channels. It will make different pipes if you take the water analogy and we will be able to then increase capacity to be able to add more customers and additionally change a throughput.
4602 MR. ENGELHART: So the way you get from the engineering speed to the product definition is we look at a node which, say, has 500 homes in at and then of those maybe 300 have made the wise decision to be Rogers' customers. Then of those maybe half are internet customers so you have 150 homes per node.
4603 Then we make engineering decisions based on actual data that X number of people will be using it at the peak period and their usage will follow a certain profile.
4604 So we can say even though the channel is 10 Mb per second our predictions will be that the throughput is to end the network in the case of Rogers, and I believe the others are similar, we design it so that at the peak period the users can all get 75 percent of the advertised speed. In the non-peak periods they will get the advertised speed.
4605 So we then periodically check to make sure they are getting those speeds and if they are not then we segment the nodes so that the number of users is smaller and that's how the engineering speed gets translated into the product definition.
4606 COMMISSIONER MOLNAR: Thank you. And I believe I heard you say earlier that unlike the ILECs who have come forward and said that as they move to their next generation of telephone plant -- and they have really defined that similar to you -- as we are going to push fibre closer and we're going to upgrade the electronics, and for them there is a higher risk, you are saying this move to DOCSIS 3 and the higher speeds enabled doesn't really have greater risk as you move forward. But then --
4607 MR. ENGELHART: Well, a couple of points.
4608 I mean I have had the good fortune to be in this business for 24 years and I have been hearing Bell say for that whole time that if they don't get the decisions they want they will stop investing. So there is nothing new in that story.
4609 We have spent a ton of money. I think we have a big tolerance for risk. We continue to spend a ton of money so we are spending $1 billion a year or so that Rogers on upgrading our networks and, you know, we think we have the right business plan but there is risk involved with that.
4610 MR. BRAZEAU: Just to add, there are more competitors than just Bell Canada or the telcos out there and there is cable and DTH. So we face these risks every day and we manage them and we continue to invest and we lose customers and we gain customers and that's the nature of the market.
4611 COMMISSIONER MOLNAR: Thank you.
4612 I'm going to move on. It is a question I have asked of the ILECs and I would like to ask you as well and that's about some of the niche competitors that we have there that serve niche markets.
4613 I actually remember hearing Mr. Lee from the Rogers organization a couple of years ago speaking at the telecom summit about the fact that Rogers develops its services and employs its ITMPs, and so on, to serve the mass market, and rightfully so.
4614 But then my question is, how do the smart players -- if we weren't -- if there was no access to facilities to enable some of the competitors that are out there, your competitors today or what potentially could be complementary service providers to you today to offer services, how is that those niche needs are met?
4615 You know we begin and your evidence speaks very clearly about the need that you think there is adequate competition today and the competition between the telcos, the wireless and yourselves is sufficient and it's vibrant. But there still are I think -- you know, given that all of those incumbents or carriers are focused on that same mass market, there are still some outliers, outlier customers. So how would you see those being served if there was no wholesale market?
4616 MR. ENGELHART: I think the niche markets, if you will, and the opportunity for sort of value-added is mostly in the business sector. It's in businesses. We heard one of the ISPs yesterday, I think, talking about some neat things he was doing with traffic light monitoring and other neat services.
4617 So I think it's in that business there that businesses have needs that are particularly unique. In the residential space there is way less niches, if you will, and there is way less opportunities for service differentiation by resellers. In fact, to some extent the internet market is becoming less niche.
4618 We spend a lot of money to get Yahoo to provide various applications and storage services and content and, you know what? People didn't want it.
4619 "Just give me the pipe. I will go to the sites I want to get to. I want a big fast reliable pipe." That's what our Internet customers are telling us.
4620 So I don't think that in the residential space there is the same need for niche services and I don't think there is the same opportunity for value-added resale as there is in the business space.
4621 COMMISSIONER MOLNAR: I just throw out some residential customer who is a user of peer to peer as an example. There are residential customers who enjoy using peer to peer, not something that maybe your network is designed to support.
4622 I guess I'm not convinced that there are no niche markets in residence for example and we could use somebody like that, a large peer-to-peer user as an example. So where are they served?
4623 MR. ENGELHART: Well, Mr. Faccia has that data, and we are serving a lot of those peer-to-peer users. We have a huge amount of peer-to-peer traffic on our network. I think all the cable companies are the same, the phone companies are the same.
4624 So I mean I suppose there are those users who would like a terabit of downloaded data for $50 a month. They are probably -- I don't know who is going to serve that niche because it is just not even economic, but we provide huge bandwidth caps for our services and a lot of that is gobbled up by peer-to-peer today. So I do think we are serving those requirements that our customers have.
4625 I mean just to give you an example.
4626 COMMISSIONER MOLNAR: Let's just maybe move on. You know, I heard what you said. If at the end of this there is still a determination that there should be a mandated access to wholesale services as exists today or some other mandate, do you think that there is any alternative to the tariff filing process we have in place today to meet those needs?
4627 I say that. Let me first ask you, could you envision a process of negotiations where you would provide the wholesale services by negotiating under a set of, you know, guidelines provided by the Commission or otherwise?
4628 MR. ENGELHART: I will start. I'm sure my friends will all have a different answer.
4629 What you tend to find in communications markets is when the growth curve is fairly steep people don't want to get involved with resellers because they are growing as fast as they can. As the growth curve starts to flatten out and you are just not adding very many customers, you start to look to wholesalers because they can get you the revenues and the growth that you weren't getting -- that you aren't getting any more.
4630 That is what we have done for example in our wireless business. We now actively court various wholesale third parties. I suspect in the case of Rogers if we did in a free market environment, court wholesalers, I suspect it would not be TPIA, because with TPIA they provision the modem, they have their own backhaul. All of that adds complexity to what Mr. Faccia does.
4631 So I suspect if we were negotiating with a third-party wholesaler our preferred position would be that they would be a true reseller, that they would resell our service under a white label arrangement. In our other lines of business we have done arrangements like that and I do think that is the kind of thing we would look to do.
4632 MR. BRAZEAU: Maybe we are just having some -- or I certainly am having problems with the premise of your question, which is that somehow we have to be supporting niche players out there for whatever reason.
4633 I think the Commission has a set of rules on what is essential, what is not essential. We meet those rules, and if somebody can make a business plan out of those tariffs and those rules and those regulations, good for them. If they can't, I don't think it is our job to be there supporting anybody and everybody who wants to get into the marketplace.
4634 So that's why I think we are being challenged by the premise of your question.
4635 COMMISSIONER MOLNAR: Okay. Well, I will rephrase my question and ask the next one.
4636 Let's assume that at the end of this the Commission determines that it does meet the rules of the essential services decision and is aligned with the policy direction and the OIC and all the other elements we need to consider and it is determined that there should be a wholesale service made available; negotiations may not work.
4637 Can you think of any other means today the way that wholesale services, as you know as you go through a lengthy costing process -- well, first I think in the case of TPIA you negotiated for years to come up with some technical parameters and followed that by a lengthy costing process to determine at what price this should be provided.
4638 Can you think of any more efficient means, recognizing that perhaps never hurt you so much, but if we want to avoid a long regulatory delay on this, is there another means of moving forward on this that wouldn't include that long process?
4639 COMMISSIONER MOLNAR: I'm going to take that -- and of course you have another opportunity coming before us so you can think about it -- but at this point I'm going to take it as you really like the way TPIA is designed -- well, priced today.
4640 MR. ENGELHART: Maybe we have all been in a regulatory business so long we can't think of another way. The problem always is the one side wants a lot of money and the other side doesn't want to pay a lot of money and you end up having to decide and you need some way of doing that other than flipping a coin.
4641 But let us think about it and get back to you tomorrow.
4642 COMMISSIONER MOLNAR: Okay. My last really isn't a question. It's more of a statement that we can continue tomorrow.
4643 You know, I have seen your opening statements and I heard your conversation with the Chair and Commissioner Denton and I remain very puzzled by what exists in the market today. You folks sitting in front of us have more retail residential customers than the rest of the room combined.
4644 You have a wholesale product that offers greater speeds than what the ILECs do; you have come forward and professed that it is relatively equivalent to the ILECs product as it regards its functionality, it's pricing, and so on, with the exception that it doesn't serve the business market.
4645 But we have seen numbers and I can tell you that it is not the business market that makes this different. So I just think it's confusing.
4646 At this point the fact that this difference exists in the wholesale market in the demand for your product versus the ILECs product, I don't think has been answered. I'm looking, I guess, not to address it with you today, but you will be in front of us today and there will be opportunities over the next couple of days for others to address it in you to respond to those differences because it's not a compelling story right now to say they are the same, because it doesn't make sense at the highest level to see the differences in demand between the two products when your product is clearly attractive to the retail end, not attractive to the wholesale end.
4647 MR. BRAZEAU: But I think you have heard more or less the answer this morning from MTS.
4648 MTS did not have an issue with TPIA and recognized the differences in the market we serve and technology we used to serve that market. They said, "You know, we don't have large issues with that and the reason being is that we are not in the business market".
4649 And there lies, I think, the answer to the problem -- to your question -- is most ISPs want access to the business market. The residential market becomes a by-product of their entering to serve the business market. I know I did it at Sprint Canada. So if they can't get into the business market and they can't have economies of scope there, they are not interested.
4650 Our TPIA service is more bandwidth and cheaper. Obviously the market and the economics would say that is the service you would rather have as a wholesaler, but they don't.
4651 COMMISSIONER MOLNAR: So is the restriction is removed on the use of TPIA for business services? The problem is addressed? Is that what you're telling me?
4652 MR. BRAZEAU: I think, you would have -- no, no.
4653 MR. ENGELHART: The problem isn't the restrictions on use. The problem is our footprint doesn't go to very many business locations. We serve mostly residential customers.
4654 Our Rogers business services business is not a big contributor to our bottom line. We don't serve any enterprise customers. We serve small and medium-sized business but they have to be on the network and most of them aren't on the network. And it's a painful, slow process to get wires into the buildings and then it doesn't pay back --
4655 COMMISSIONER MOLNAR: Mr. Engelhart, with all due respect, I don't think the competitive ISPs, with the exception of MTS -- most of the competitive ISPs are not serving the enterprise market.
4656 MR. ENGELHART: No, but they are serving small and medium businesses and we don't serve many of them. We don't have cable into those locations. Even for someone like Primus who has two-thirds residential customers, if for one platform you can serve both and the other platform you can serve one, why would you not serve both?
4657 COMMISSIONER MOLNAR: Okay. Thank you. I heard you and, as I said, this is probably something we will be talking about over the next couple of days some more.
4658 Thank you.
4659 MR. WATT: Excuse me. I was just going to add very, very briefly if I could, that to your conundrum as to the disparity with the numbers, I think Primus did probably explain some of it is well on the residential side.
4660 I don't know the numbers, but I hazard a guess that Primus may be the largest provider of internet services using other underlying facilities. I don't know that for a fact, but I know they are a big player with a million customer relationships and they, they said, grew up in the telephone business, came from the long-distance business, and developed co-location sites and processes and familiarity with the telephone company and that, as they said, lead them, along with the -- to start first with the telephone companies and then it becomes a matter as they grew. Would it make any sense to duplicate the interconnection with another provider, particularly when that other provider didn't provide opportunities in the small business market?
4661 So I think maybe if you look at those numbers you will see a closing of the gap if Primus was taken out of the numbers.
4662 THE CHAIRPERSON: Anyway, this is a pointless debate. We are talking about what other people think. They will be before us tomorrow and we will find out whether what Mr. Engelhart has now said three times is right or not, whether they are interested in the residential market or not. So let's wait until tomorrow.
4663 Next is Len.
4664 COMMISSIONER KATZ: Thank you, Mr. Chairman, and good afternoon.
4665 I'm going to pick up a little bit on this business market where you say you are not in the business market. Your footprint obviously covers all the suburban areas with all the strip malls, box stores and the like as well.
4666 So I guess if I take what you say that you are not in the business market, then it leads me to conclude that there is a monopoly on the business market broadband access services. If, on the other hand, you are in the business market to some extent, then the question is, is there a competitive market out there? I guess it all comes down to what extent are you in the business market or are you not in the business market?
4667 MR. ENGELHART: I think the business market is largely a monopoly. I think they are largely served by the phone companies.
4668 As MTS said this morning, for really big industrial parks there will be maybe TELUS and Bell and maybe MTS as well. For most of the others it is the incumbent phone company.
4669 Now, it is a growth area for us. It is something we would like to do. It is a product we would like to offer. We have salespeople on the ground selling it. Mr. Faccia is working away designing the products.
4670 The economic problem that we have to get into the business market is we are going down the street. We are going right down the street by that lovely strip mall and there is a hardware store in there and they would like our services.
4671 Well -- and I get some of these phone calls sometimes from friends of mine who are small businesses and they say "Ken, I want your services and your sales guys told me it's going to cost $5,000 for the initial hook-up". And I called Tony and I say, "Are you crazy?" And he says, "That's what it costs to break out of that conduit, to get to the manhole, to get to the sidewalk, to get up the polls, to go across down to the hardware store, $5,000 or $10,000 or $20,000".
4672 Then the person is paying you $50 a month or $75 a month and how do you eventually get payback?
4673 So I don't want to tell you that we are giving up in this market. We are in it to win it but it's very slow and the payback is miserable.
4674 COMMISSIONER KATZ: But you are in it and you are passing businesses. Can you let us know in confidence, if not otherwise, what percent of businesses you pass?
4675 You must have that information somewhere.
4676 MR. ENGELHART: Probably pass 100 per cent. The question is, where do we have wires going into them?
4677 Mr. Faccia tells me we have some numbers we can provide you with.
4678 MR. FACCIA: Yes. There are a lot of those strip malls, to your point that we have built out to. But there are many that we have not.
4679 So even if there was a new subdivision or an area being out, our past practices were not to build into the future commercial plaza because very often those plazas come later so there are complexities in trying to build infrastructure into those areas. We felt that it was not economic to build into those models.
4680 So we are looking at trying to change that going forward and building into strip plazas and so on as they are built out, the same as we do into residential areas, but there is a large percentage of the base today that is not addressable by us unless we do plant extensions.
4681 COMMISSIONER KATZ: Does this fit into Mr. Engelhart's comment before that as businesses are growing quickly they don't want to see any alternate providers but as they start to plateau, at some later stage you are then looking at finding alternate distribution channels and you are at the point now where you are not interested in it for that reason?
4682 MR. FACCIA: No, we are interested in it. In fact, that small, medium business area is something that we see as growth opportunity, as Rogers.
4683 COMMISSIONER KATZ: You are interested in it directly, not indirectly.
4684 You don't want to partner with anybody to do it. You want to do it yourself.
4685 MR. ENGELHART: Well, if anybody had a way of getting into those buildings for us we would sure partner with them, but it's a matter of outside plant engineering.
4686 MR. IRVINE: When we do it most of the time it's a PRI product that we buy from the telephone companies.
4687 MS MacDONALD: I think the other point I would like to clarify is that we do have an interest in the business markets. I just want to make it clear that when we say we are not in the business markets from the perspective of our company, EastLink, you know, we are very interested in the business market and I would say our business sales people probably would say we are quite competitive.
4688 But the point is I think when we are talking about why are third parties perhaps not accessing TPIA for that purpose, or the cable companies for that purpose, I think -- and I'm making assumptions here on where they were when they decided to choose a telephony service provider, but telephony service providers were ubiquitous and so as traditionally a cable provider we would be in the residential homes.
4689 As we move into serve businesses we have to sit down on a case-by-case basis and say okay, you know we might be passing this area but is there a business case to go in and build into that particular business?
4690 So I think that might be the distinction.
4691 COMMISSIONER KATZ: Okay. Mr. Béland, you were going to say something as well?
4692 MR. FACCIA: I'm sorry. I will just add that as soon as the infrastructure is extended into those commercial plazas and otherwise, they are available to a third-party internet provider as soon as that happens.
4693 But we often are doing this based on a request coming in from one of those customers to build out and that they choose to pay the cost of extending our plant to get to them.
4694 MR. BÉLAND: What I wanted to add was that this debate has occurred as well in the context of some applications for forbearance for business local exchange services. We have provided in the context of some of those applications some quite extensive data already. The phenomenon you see is similar to what Tony described and Ken described.
4695 When you talk to our business -- because we do have these business products now -- when you talk to our business marketing people who would like to sign up small and medium-sized businesses, they can't mass market. They have a very focused marketing approach and the reason is it is driven by infrastructure and access.
4696 What our people will literally do is look at a town. They will go to Dun & Bradstreet or whatever source is available. They will find all of the businesses, locate them in that town geographically; they will overlay onto that a map of our network and they will start measuring, "Is that business there close enough to an accessible access point? If so, let's try a cold call".
4697 They don't do a lot of mass marketing. If the business is -- even if our network may be passing by a particular business, if the business is not accessible and there is no evident way to make a quick enough return to pay for the construction costs, they don't even attempt to market to that business.
4698 So when we say that it's spotty, that a small percentage of his misses are economically accessible from our network, it is a reality because it's actually how our marketing service functions.
4699 COMMISSIONER KATZ: Some of you are in the wireless business.
4700 Can you tell me whether from your perspective WiMAX and fixed wireless are substitutes for classical wired broadband services today?
4701 MR. ENGELHART: I was beginning to despair that no one was going to ask me that question.
4702 COMMISSIONER KATZ: It takes a wireless person to ask you the question.
4703 MR. ENGELHART: Yes. So very much we think they are substitutes. We have two products at Rogers Wireless that are substitutes and one that is a direct substitute.
4704 So a lot of people are familiar with the rocket stick. You plug it into your computer. You have high-speed internet anywhere that there is the wireless network. It operates now at 21 Mb per second. That is the --
4705 COMMISSIONER KATZ: It's a shared network, right?
4706 MR. ENGELHART: It's a shared network.
4707 COMMISSIONER KATZ: So the 21 Mb, if one person is on it and accessing, if there are 10 people it comes down pretty quick.
4708 MR. ENGELHART: I run a speed test wherever I go and I am often getting better numbers than with my wireline service.
4709 MR. BRAZEAU: Who offers that?
4710 MR. ENGELHART: I get eight or nine megs down and three up, even on the 20th floor of the Westin Hotel. So it's fast. And even at my cottage I'm getting one or two, which is pretty good considering the topography.
4711 COMMISSIONER KATZ: Have you checked your bill to see how it compares to a wireline bill?
4712 MR. ENGELHART: It is very, very comparable. This is the point I really wanted to make because you get the same service $30, $50, $80 a month, so very comparable to the wireline. The difference is the byte cap, okay?
4713 So with my wireline service I have a bite cap of 90 GB. With my wireless I think it's eight or six. So a much lower bite cap and people say, "Well, there you go, it's just not a substitute".
4714 It is for me. I mean I check my wireline service every month and I am allowed to use 90 GB. When my kids are away at school, I'm using one and a half gigabytes a month.
4715 So for the median wireline customer, the median customer, not the average, this product gives you enough capacity. Not the average, the average is up at around 10 or 15. But the average is being brought up by those bandwidth hogs who are using tons and tons of bandwidth. For the median customer this provides enough.
4716 So this brings us to this product which is the rocket hub. We market this solely as a substitute for wireline replacement. It is not a mobile device. It plugs into the wall. You can take it in your car. It's portable. You could move it to your cottage or to your office.
4717 But we are directly marketing this as a substitute for wireline broadband. And it also has, for an extra $15 a month, voice, and you can plug a phone line into it. You can plug your phone into it. So this is an extremely successful product.
4718 We have provided the Commission -- I think it's CRTC 2001 to 2004 -- with all kinds of data about sales and projections of this, but this is a substitute. And Nadir Mohamed again, our president, has said that within three years he expects 20 percent of wireline internet customers to cut the cord and move to one of these wireless devices.
4719 COMMISSIONER KATZ: So do you see that as a substitute for the business market? I'm focusing on business here.
4720 MR. ENGELHART: For the business market, I think for a small business this might be an excellent product, particularly if you think of a consultant for someone. He could have it at home, stick it in his briefcase; take it to the office. Now, for $50 a month he has internet at both locations.
4721 COMMISSIONER KATZ: Because I heard you say a few minutes ago that broadband business, you are coming to the conclusion, is a monopoly service, is what you said. Now you are saying this is a substitute for it.
4722 MR. ENGELHART: If you make me pick between vigorously competitive and monopoly I'm going to pick monopoly. But the truth is, the phone company is dominant there and this product and cable and every one, we are chipping away at it.
4723 COMMISSIONER KATZ: Okay. My last question: You are strong proponents of us obligating the ILECs to have matching speeds, and I'm trying to understand why.
4724 If you are ahead of the ILECs right now and you are providing a faster service, why are you so insistent that they provide matching speeds? What does it do for you?
4725 MR. ENGELHART: I think what we said is we don't think either of us should. We think that the market is competitive without wholesale, but if we have to do it we think they should have to do it.
4726 COMMISSIONER KATZ: But what does it do for you from a competitive perspective?
4727 MR. ENGELHART: Well, I don't know. I heard Mr. Bibic say on Monday that if they had to do it their entire network would crumble. So maybe that's what it does for us.
4728 COMMISSIONER KATZ: Okay. Those are my questions.
4729 HE CHAIRPERSON: Steve...?
4730 And try to stay away from Rogers' commercials, please.
4731 COMMISSIONER SIMPSON: Thank you very much, Mr. Chair.
4732 Back to larger issues or, I should restate that, back to higher plane issues. Giving you full grade and full marks for your comments about the cable network being, you know, a little more difficult to deal with from an ISP standpoint I found it interesting back in 2002 when -- and I hope this wasn't the last time we looked at this whole thing -- the Commission had published a study from a company called Imagineering Telecom and it had said back then essentially what you are saying now, which is that the whole cable system was never really ever designed or built to contemplate what you are looking at today. Part of the problem with scalability, another major part of the problem was that there just weren't third-party manufacturers of connectivity equipment.
4733 I think Motorola was in the game in those days. I can't remember the name of the other supplier. But, you know, you were -- as you try to move into it you are limited.
4734 But what I thought was interesting was that in the concluding comments of the study, way back then, almost a decade ago, they had said that while it is theoretically possible to provide TPIA over some cable systems using proprietary technology, it is not a practical solution.
4735 It went on to explain a bunch of technical reasons, but the one that caught my eye was that the proprietary systems that were being designed -- this was around the cusp of DOCSIS 1 -- the proprietary systems that were being designed to get you guys more into the game -- and gals, pardon me -- was that they were not really being designed with any larger policy issues in line with respect to the need for greater connectivity to your network.
4736 Because you were being able to be left to your own devices, you very rightfully went about your business and built your business on the basis of standardization of technology that best served your interests. But my concern is this, that building out a network that has become -- the cable industry had become hugely successful and you are enjoying the spoils of what I consider to be great ingenuity and the like.
4737 Mr. Brazeau had indicated that larger interests, national interests and the digital economy really aren't the stuff that your culture is made of. And I asked you this question, that as you grow closer to the potential of an ultimate success, do you not contemplate that there is going to be the need to see more regulation in your industry than there is now so that that cultural thinking can change?
4738 MR. ENGELHART: I guess when I got into the telecom business a quarter of a century ago it was mostly monopoly supplied and we were all of the view that as more and more competition came along there would be less and less regulation.
4739 So I guess my view is, you know, the market is way more competitive today than I ever dreamed it would be when I first got into the business and technology has a way of coming up with new suppliers, not always the people we think are going to be the suppliers. So I think in the telecom side I have seen a dramatic deregulation by the Commission over the years.
4740 I'm not sure I would say the same thing on the broadcasting side, but I expect to see that trend continue and I expect to see gradually less and less regulation in telecom.
4741 MR. BRAZEAU: Just to take the opposite view, I'm not sure even if you tried or imposed even more regulation whether you could really achieve whatever objectives that you are trying to achieve.
4742 Like Ken, I agree that this is a competitive marketplace. I think if you take any measurement of our successes in Canada on the internet site they are tremendous. I don't know what the malaise we are trying to cure here. I'm not sure adding more layers of regulation will get you there.
4743 And as for theses standards, DOCSIS standards you talked about, this closed system, I think you heard it from us this morning that they are not and, you know, they were just -- vendors do not build to those specifications. There won't be that equipment.
4744 So the vendors certainly have to be there in order to provide this equipment.
4745 COMMISSIONER SIMPSON: My second part of this question, and then I'm done, is the uptake of greater accessibility within the cable industry by utilizing TPIA, the needle hasn't moved a whole heck of a lot in the last five years. Is that because the present DOCSIS system wasn't doing the job and DOCSIS 3 will or what was it?
4746 Because I'm trying to go to the other end of the continuum and say we are not seeing uptake in new competition through third-party and we are not seeing a heck of a lot of improvement in pricing as a result of whatever competition there is available. So I'm just wondering if you could comment.
4747 MR. ENGELHART: I'm not going to repeat the answers that I gave to the earlier commissioners because they are on the record, but let me just sort of make an additional point that I think might be responsive to your question.
4748 Fundamentally I don't think the resale model works. I don't think mandated wholesale works. There are a couple of reasons for that.
4749 It is sort of an unnatural business model. To go back to Mr. Cope's Tim Horton's story, it's not that you would mandate Tim Horton's to provide their coffee, you would actually be mandating them to make a cashier available, some counter space, a couple of coffee pots and all that gets carved out of a Tim Horton's store somehow and you are setting the rate. It's a weird model. It's not something that normally works.
4750 The other problem I think comes back to a comment that Commissioner Denton made a couple of days ago in a question, which is it sort of relies on a perfect Godlike regulator that knows everyone's costs, can make the perfect decision at the perfect time.
4751 And in the real world, of course, costing is an inexact science. You end up with a range of possible outcomes and you are in the uncomfortable position of having to pick a number somewhere in that range without knowing terribly much with any precision where that number is. If you pick the low end of that range someone will be very unhappy; if you pick the high end of that range someone else will be very unhappy.
4752 So if you look at the mandated wholesale model you end up seeing a sort of a process where the Commission picks a number. A few years later somebody squawks and says "I'm going out of business here" or the incumbent squawks and says these guys are getting way too rich, you dummies picked the wrong number.
4753 So the costing ends up getting revisited and you end up with a number which has the third parties kind of limping along.
4754 We bought Call-Net for $600 million and we have retrenched largely from a number of those businesses they were in because we couldn't make a go of it and I think mandated wholesale as a business model was a noble idea that regulators all around the world have tried and I don't think it works.
4755 The one exception to that, as I was saying to Commissioner Molnar, is if you are in a market where there is enough niche is an enough creative people can value add to that telecom service to make it something different, then I think it has a chance.
4756 MR. BRAZEAU: Just to add one point to that, Ken mentioned the omniscient regulator and costing, but it's more than that and it's what a lot of resellers are facing today. There is the reality of the marketplace.
4757 So you change the costs, okay. So let's reduce the TPIA cost by half and let's increase the speed by twice the speed. Fine.
4758 As soon as they -- you know, we will respond. We have to respond. So this dream that a lot of resellers have, that if I can only take away enough customers to gain that critical mass of customers, then I get credibility in front of the financial community. Then I can get money, then I can build facilities and you have this virtuous dream of being a self-sufficient facilities-based carrier.
4759 It never happens because the reality of the market is there. You know if you lose market share you will respond. You will respond how? Lowering prices.
4760 So now you have to start regulating prices. So now you're in the price regulation business.
4761 That's why I said I'm not quite sure what regulatory tools you could use to guarantee, you know, a happy hunting ground for resellers. I just don't know.
4762 MR. BÉLAND: If I can just add one comment, I think this entire discussion of mandated resale reflects to a large extent a static view of the world and I think your initial question somehow implied that we live in a somewhat static or at least not fast-moving part of the industry.
4763 I just have to say that would be -- if my boss were here, Mr. Dépatie were here, he would be wondering what planet he is on right now. If Videotron believed it lived in a static marketplace it wouldn't be betting $1 billion on a wireless network.
4764 COMMISSIONER SIMPSON: Just to clarify I don't think I implied that at all. I was saying that what was static was the growth of that 5 percent of the remainder of the reseller market.
4765 Your industry is actually rocketing along, pardon my use of your trademark, but the concern is that what point do you reach an inflection point where unintended consequences of your success start to impact other larger issues.
4766 Anyway, we will leave it at that. Thank you.
4767 MR. MacFARLANE: I think I would like to comment as well. But just from a Cogeco perspective, because I am one of the guys here at the table that doesn't happen to be also a wireless carrier, and I feel far, far away from being dominant in my market.
4768 I have Rogers and Bell and TELUS all beating on my door. Yes. I have a good platform that I can compete actively on, but I'm not dominant and I am working hard to stay competitive. But it is a very competitive market and we don't need more regulation to make me less -- make me feel less sure than I really am.
4769 THE CHAIRPERSON: Okay. Marc...?
4770 We are way behind schedule so let's keep it short.
4771 COMMISSIONER PATRONE: Thank you, Mr. Chairman. I will try to keep it brief. I have a couple of hopefully reasonably quick questions, and good afternoon.
4772 I wanted to address the relative lack of take-up for TPIA compared with GAS, specifically the contention made by Mr. Engelhart and Mr. Brazeau that accessing GAS means being able to service both business and residential customers where TPIA basically gets you residential. Correct?
4773 Is the current mandated wholesale access regime a disincentive for cablecos to make inroads into the business market? In other words, is there a corporate strategy to the effect that any gains you might make in the business market would be more than offset by losses on the residential side to resellers accessing TPIA, who of course wouldn't face as big a disincentive if you didn't have the footprint issue that you had talked about earlier?
4774 MR. ENGELHART: No, I don't think so.
4775 You know, first of all, we don't really make our decisions based on what to resellers are going to do or not. I mean we are really focused mostly on Bell and the other facilities-based players and we make investment gambles when we think the technology is right to create a new business. So I don't think it is any part of our thinking to worry about whether it would advantage or disadvantage the resellers.
4776 COMMISSIONER PATRONE: But if you grew your business footprint, would it not stand to reason that the disincentive that you have highlighted for us as the reason for greater take-up on the GAS side be eliminated and therefore increase the likelihood that there would be greater take-up on TPIA?
4777 MR. ENGELHART: I suppose. But, you know, it's not like TPIA is such a big tragedy. I mean if they'll steals a customer from me he's gone. If TPIA steals a customer from me, I still get half the revenue in the form of wholesale.
4778 If I didn't have the bad debt problems that I had with some of my wholesale customers, that would actually be not a bad deal.
4779 COMMISSIONER PATRONE: Do you feel that way, Mr. Brazeau?
4780 MR. BRAZEAU: No, absolutely. I think the real challenge for us -- and my master engineer here can certainly attest to that -- it's just the cost of accessing all those strip malls and all these small businesses.
4781 Again, you know, I hate harping on my past experience in the telco field, but even when we were at Sprint Canada the hardest nut to crack was the small/medium-sized business market. Because just think about it, the sales channel is so inefficient to go and try to grab that customer away from Bell Canada, you almost have to send somebody knocking at the door and making sales and then all the costs, the network costs involved in getting that customer. It just didn't make any economic sense.
4782 So could we get the large customers, absolutely; the small and medium-size customers, we have none.
4783 So you know the cable industry today faces exactly the same challenges. You knock at doors and they say, you know, we're not sure because it's going to cost you $5,000 to get access.
4784 So that's the challenge we have and are we getting -- are we still investing, are we still putting fibres in some strip malls, in some buildings, yes, but it is at a fairly slow pace.
4785 COMMISSIONER PATRONE: Yes. I'm just wondering if the regulatory symmetry issue is dealt with if and when you aggressively pursue the business market.
4786 MR. ROY: But just talking about --
4787 COMMISSIONER PATRONE: I'm sorry, go ahead.
4788 MR. ROY: Just talking about the business market, because I live this and other engineer folks live this as well, if somebody wants an internet access into their office, let's say the building here. We are in Quebec and Videotron provides services. You call us and you would like it because you have an event tomorrow. So you say, "I will call Videotron. They have a great service".
4789 So what do we have to do, is we need to send a guy that will go around your building and see how the wire can go from there to your office and will then answer you in a certain number of days.
4790 You could use the same phone and call the other company and ask them and they will say you know what? I will punch you two pairs of wires in "X" number of days and you will have your service.
4791 On the business side the economics and the delays to install is you are business people and you want things yesterday. You don't want to wait for them.
4792 I hear this, but you need to understand this very well, is business people don't have time to lose.
4793 The example that Ken brought with the wireless access is let's say you have three choices; one is I have this box in my case and I have an event here versus calling a flat copper wire or a cableco, probably you will take that box out of your case and install it. That is major for us because it is delays and it is investments and it's return.
4794 COMMISSIONER PATRONE: Okay, just this question related to that. Would increasing your business footprint cost you residential customers as an outgrowth of the argument that you have made vis-à-vis the disincentive associated with TPIA relative to GAS?
4795 MR. MacFARLANE: I think from a Cogeco standpoint --
4796 COMMISSIONER PATRONE: Is that a logical extension? Does increasing your business footprint cost you residential customers?
4797 MR. MacFARLANE: I personally don't think so from a Cogeco standpoint. The number of truly on net businesses in those strip malls is very few.
4798 Yes, we passed by a bunch, but, you know what, to get into them so that they are actually on net costs a lot. Directionally boring under parking lots and going across polls and things like that costs a lot of money.
4799 So for us to get the penetrations that you are talking about in order for it to be an incentive so that we start to lose residential customers, we would have to get to a fair percentage of those businesses. As you will see when we file our on net building numbers, we are nowhere near that kind of level of penetration today.
4800 MR. ROY: And you need to look at on net and near net and far net and extremely far net numbers to understand the difficulties we have to address these addresses and these services.
4801 COMMISSIONER PATRONE: Those are my questions.
4802 Thank you, Mr. Chair.
4803 THE CHAIRPERSON: Okay, thank you. We have spent more time with you than we normally do, but we want to make sure we have this.
4804 I just leave you with one observation. You can have the next two days to deal with it.
4805 In my mind there is an inherent contradiction in your position. You say we are not in the business market. You say you want to get into it. Yet, you refuse to do anything that smells of symmetry which would help your resellers get into the business market according to them.
4806 So why, you know, if you are not interested in the business market then I cannot understand why you are opposing symmetry; if you are not, why are you opposing it?
4807 But anyway, we will deal with it tomorrow or the day after. Thank you.
4808 We will take a five-minute break before we go to the next.
--- Upon recessing at 1510
--- Upon resuming at 1519
4809 THE SECRETARY: Order, please.
4810 THE CHAIRPERSON: Okay, let's go.
4811 We have a lot of time to catch up.
4812 THE SECRETARY: Thank you, Mr. Chairman.
4813 We will now hear the presentation by Distributel Communications Limited and Cybersurf who are appearing together.
4814 We will hear each presentation which will then be followed by questions.
4815 We will begin with Distributel Communications Limited. Appearing for Distributel is Mr. Mel Cohen.
4816 Please introduce your colleagues and you will then have 25 minutes for your presentation.
4817 MR. COHEN: Thank you. Good afternoon, ladies and gentlemen.
4818 I'm Mel Cohen. I'm President of Distributel Communications.
4819 With me today is Donald Cavanagh, Vice-President of Network Planning and Operations and Regulatory Matters at Distributel, and our external counsel, Chris Taylor.
4820 Before I start, I'd just like to clear up any possible confusion about Distributel and Cybersurf being on the same panel.
4821 One year ago Cybersurf sold their customer base and their telecommunications operations to Distributel, so we now have a lot of common experience with respect to that base and those operations. But that's the full extent of our relationship. We are separate companies and will be presenting separately here today.
4822 Twenty five years ago I was an employee in the business development department of Bell Canada when the CRTC made a decision that ultimately changed my life.
4823 Back then we had a very different telecom environment. Long distance telephone service was still a monopoly, competition to provide local telephone service wasn't even thought of.
4824 But pressure was building to allow more competition, and the CRTC concluded that permitting resale and sharing of telephone company services was in Canada's public interest. Resale was a limited form of competition that the Commission decided would provide the benefits of innovation and consumer choice.
4825 Before implementation, however, the telephone companies were given a chance to modify their rates in a revenue neutral manner to eliminate their worst vulnerabilities to arbitrage. I was assigned to a task force that was mandated to examine what those vulnerabilities were and, with some help from my boss, uncovered a potential resale opportunity that seemed to fit the CRTC's rules.
4826 Not too much later I took the mortgage on my house from two years to twenty, left my position at Bell, and started Distributel.
4827 Once I told my sales rep at Bell what I was planning to do with those 160 Centrex lines that I ordered for my tiny Yonge Street office, the word quickly got back to headquarters who in turn told the sales rep that they had policy concerns.
4828 So I arranged to meet my former colleagues at 160 Elgin Street. We had a nice discussion, during which I explained in great detail how I believed my new service fit squarely into the CRTC's rules for resale. But at the end of the meeting they looked at me and said, We hear you, Mel, but we have to try and stop you anyway.
4829 Not much later they had an application before the CRTC requesting permission to shut my service down.
4830 Telecom Decision CRTC 89-2 brought that little episode to a happy ending for me and for the 200,000 customers who eventually took advantage of the services that Distributel brought to the market.
4831 But I still remember waking up in a cold sweat thinking, what am I doing taking on a $7-billion company and I still wonder today sometimes.
4832 I'm telling you this story not just to amuse you with an interesting anecdote, but to illustrate something about the large incumbents and something we call market power.
4833 You see, while it was a, what have we got to lose proposition for Bell to take their case to the CRTC, for me preparing my defence meant a full month away from selling my services at a critical time in my company's start up.
4834 With $10,000 flowing out the door each month, that no growth period actually had a critical impact. And despite the favourable CRTC Decision, I almost ran out of money.
4835 There's another story I'll tell some time to as to how we managed to get past that hurdle but, fortunately, we did and as evidenced by our presence here today.
4836 Since that time we have evolved considerably and today, while we are still very much in the long distance business, we have been trying to move to a more balanced portfolio of services.
4837 To this end, we have become a provider of local VoIP services, a CLEC and an Internet service provider.
4838 Now, since the Commission has been mandated to rely on market forces to the greatest extent possible, I'd like to talk a little more about market power.
4839 When I was still in the very early stages, a good friend of mine lent me a book which is now a classic text on analyzing industries. It's by Michael Porter and it's called "Competitive Strategy".
4840 Right in the very first chapter is a chart that gives the starting point for analyzing the forces driving industry competition which, roughly speaking, are defined as the forces at work against a company's profits.
4841 And that chart I've reproduced here in the hand-out. As you can see all the forces we've been talking about in one form or another throughout this hearing: Supplier power, buyer power, threat of new entry and threat of substitution.
4842 Below, I've customized the chart to address the critical forces that pertain to the market under consideration predominantly in this proceeding. The title of that chart communicates my point: For Independent ISPs, Powerful Incumbents are Their Rivals and Their Only Source of Supply for Broadband Access.
4843 So, if you look at the chart, the box in the centre is the retail market for broadband access services. That is where the independent ISPs compete with the powerful, large incumbents which, in itself, is a challenge.
4844 Then, if you look to the left you see that the suppliers to the independents are these same large incumbents. And this is hardly your coffee and doughnuts marketplace.
4845 Okay. Another point that didn't make it into my chart is the fact that even the potential substitute services -- wireless Internet -- are also dominated by the same incumbents: Bell, TELUS, Rogers and soon to be Vidéotron and Shaw.
4846 These are the market forces that the Commission has to consider in analyzing this situation. And given these forces, it should come as no surprise that competition in the retail market has collapsed over the last decade.
4847 The following chart from our February 8th submission shows the market share of independent Internet service providers since 1988 (sic). It has dropped from nearly 50 percent in 1998 to about six percent in 2008. This is one sign of market failure.
4848 There are many factors that might be identified as contributing to the collapse of the independent ISPs' market share, but one factor stands out above all the rest, deficient wholesale broadband services.
4849 It is extremely difficult to be either innovative or compete on price when the inputs you use are constrained and expensive.
4850 There are three basic problems with the wholesale broadband services of the ILECs and the cable companies:
4851 1) the rates do not reflect costs and are far too high;
4852 2) the aggregated broadband access services of the ILECs and cable companies do not provide competitors with the same flexibility as the incumbents enjoyed themselves; and
4853 3) the ILECs do not provide speed matching.
4854 Starting with the third point. The lack of speed matching for the ILECs' services is a critical problem. Competitors are immediately handicapped if they are restricted to lower speeds.
4855 Customers are becoming more and more accustomed to higher speeds. If competitors can't offer those services, customers will go elsewhere.
4856 On the second point, the lack of flexibility in aggregated services. There are a number of issues which Don will touch on in a few minutes.
4857 For the moment I would like to emphasize that a wholesale tariff that simply mirrors the incumbents' retail offering is not a good way to foster differentiation and choice at the retail level.
4858 Wholesale services should provide competitors with as much flexibility in network design, service innovation and pricing as possible; ideally, the same level of flexibility as is enjoyed by the incumbents.
4859 Which brings me to the third issue, pricing.
4860 In our view, the economically rational approach is to have wholesale rates reflect incremental costs so that efficiency is encouraged. That is what would happen if the wholesale market were truly competitive. And that is what the Policy Direction says should happen under CRTC regulation.
4861 The Policy Direction states that when it comes to economic regulation the Commission should regulate so as to neither deter economically efficient competitive entry into the market nor promote economically inefficient entry.
4862 Cost-based pricing of wholesale services mimics an efficient, competitive market and, therefore, encourages efficient entry. It does not subsidize competitors or encourage inefficient entry.
4863 On this point I think it is very revealing to hear what Bell had to say in this proceeding in response to a CRTC interrogatory.
4864 Bell was asked to provide economic forecasts for certain possible regulatory scenarios.
4865 In its response, Bell suggested there would be serious negative consequences for Bell if the Commission were to grant competitors wholesale access to Bell's fibre-to-the-node facilities.
4866 The quote:
"The pronounced impact in Scenario 3 is due to the fact that, at an assumed pricing level of Phase II costs plus a CRTC mandated mark-up, wholesalers can significantly undercut Bell's wholesale and retail pricing on the higher speed tiers..."
4867 MR. COHEN: What Bell is saying is that wholesale customers who paid Bell compensatory, cost-based rates, which included a mandated mark-up, could underprice Bell's aggregated wholesale service, for example, Gateway Access Service, as well as Bell's retail offerings despite Bell's economies of scope and scale.
4868 In other words, these competitors would be more efficient and provide consumers with lower prices than Bell.
4869 And Bell considers that a bad thing and we think it is a good thing. And we think that is exactly what the Telecommunications Act and the Policy Direction require.
4870 One last point on the competitive environment.
4871 The ILECs and cable companies have repeatedly suggested that wireless will be the saviour of Internet competition if it isn't already.
4872 This is nonsense. In our October, 2009 submission we pointed out the enormous price disparity between wireless and wireline services for anything but the lightest of users. Other parties such as Primus have made the same point. No one can seriously suggest that a $500 service is a substitute for a $50 service.
4873 Furthermore, there are the technological limitations of wireless. These limitations were admitted by TELUS in an interrogatory response where they refer to wireless as complementary, not a substitute.
4874 According to TELUS, customers who routinely require 5 Megabits per second or greater bandwidth for their everyday Internet usage will not, at least today, use a wireless Internet connection as their sole access, but can use it as a complementary service when they want a mobile service.
4875 Bell also admitted as much in a response to an interrogatory from TekSavvy:
4876 "The Bell Mobility HSPA+ network is not presently a substitute for services requiring large amount of data download or data upload as measured in terms of Gigabytes per month. Accordingly, Bell Mobility is only offering services with a limit of 5 Gigabytes per month of combined download and upload of data traffic on its HSPA+ network at this time."
4877 MR. COHEN: And the point was made most simply and directly by George Cope, President of BCE when he told you on Monday:
"...but the reality at that higher end we've always continued to see wireline stay ahead just because of spectrum constraints and technology development."
4878 MR. COHEN: As Internet applications evolve they will need even more speed and capacity, not less. The idea that wireless will fill the gap created by weak wireline competition is simply not true.
4879 So, now I come to the hard stuff, what services are needed.
4880 As a starting point, competitive and technological neutrality require that the ILECs and the cable companies should provide directly comparable wholesale services. There should be no regulatory hiding place for cable companies.
4881 Next, from a practical perspective, it takes years for a competitor to build a customer base. As the customer base grows it may reach the point where it is economical to serve customers in some areas on a local basis. Until that point is reached, however, the only economical way of serving geographically dispersed customers is by means of an aggregated service.
4882 So, in our view, it is clear that two types of services are necessary: a local access service, that is, interconnection at the central office or cable head-end; and an aggregated access service.
4883 I will now turn it over to Don to describe the key features we believe are necessary for these types of wholesale access services.
4884 MR. CAVANAGH: Good afternoon.
4885 I will start with a few points about the aggregated service and then talk about the local service, but I would like to emphasize at the beginning that the service characteristics I'm going to describe apply equally to the ILECs' and the cable companies' wholesale services.
4886 First, the tariff structure for an aggregated access service should provide flexibility in network design. That means a competitor should have access to a range of interconnection capacities; example, E-100s, GigEs and higher and so as to be able to design its network efficiently and transition smoothly as its services evolve and its customer base grows.
4887 Second, the service should provide a competitor with access to the maximum speed available over the network. This would permit the competitor to throttle back that speed to various levels in order to provide diversity in its retail offerings.
4888 Speed matching is a second option, provided all speeds are made available, but it is not competitively neutral since it gives control over the available speeds to the incumbent even though this is not a technological requirement.
4889 Third, there should be several geographic levels or tiers of interconnection such as municipal, regional and provincial interconnection points. This would permit greater flexibility in network design.
4890 Fourth, the terms of the service should not impair the ability of a competitor to design and offer retail services which are distinct from those offered by the incumbent network operators and other competitors. In particular, there should be no restrictions on use.
4891 Fifth, it is important that competitors be given adequate information on a timely basis about changes to an ILEC's or cable company's network, especially the introduction of higher speeds in new locations.
4892 Competitors cannot compete effectively if they are operating in the dark and learn about the availability of a higher speed option off a particular ILEC remote only when the competitor's customer calls to cancel service because the customer has been sold a higher speed service by the ILEC.
4893 Sixth, rates should be cost-based. That is, the amount charged to the competitor should reflect the actual costs incurred by the incumbent in order to provide the service to the competitor.
4894 In general, this means costs should be determined based on the competitor's total peak period usage; not per-user usage and not total usage aggregated across all time periods.
4895 Turning now to a local access service, there are four key points I would like to make.
4896 First, co-location is expensive. A competitor should be able to interconnect at a point just outside a central office or head-end. Co-location should be permitted but should not be required.
4897 Second, a competitor should be permitted to use the co-located facilities of a third party at a central office or head-end by making suitable arrangements with that third party. The ILEC or cable company should not be able to block such arrangements.
4898 Third, rates should be cost-based.
4899 Finally, there should be no restrictions on use.
4900 I will turn it back to Mel.
4901 MR. COHEN: Thanks, Don.
4902 I will end by going back to the big picture.
4903 There has been a lot of talk by Bell and TELUS about next-generation networks, as well as threats about limiting their investment in their networks. Given the level of hype and bluster, it is essential to take a hard look at the realities.
4904 We describe the evolution of the ILEC and cable networks in our February 8th submission and the key point is that fibre has been part of local networks for many, many years.
4905 Primus and Execulink each made the same point on Monday. There is nothing new or revolutionary going on here.
4906 The roll-out of fibre-based technologies has been and continues to be a natural, incremental development in all local access networks. Bell Canada has been incorporating fibre optic cable in its access network since the late 1980s.
4907 On this point, I would like to correct something Mirko Bibic said on Monday when talking with the Chairman about the diagrams attached to the Bell presentation. Mr. Bibic stated that Bell's so-called legacy network -- that's the one that they want us to be restricted to -- was all copper and the so-called next-generation network was anything involving fibre.
4908 Appendix A sets out the relevant portion of the transcript, it's here in attachment.
4909 Mr. Bibic's statements directly contradict Bell's 22nd of June filing.
4910 Attached as Appendix B to this presentation are paragraphs 26 through 33 of the 22nd June submission in this proceeding. These paragraphs show clearly that the legacy network includes fibre.
4911 Paragraph 27 specifically talks about legacy fibre optic remotes. What is new about the so-called next-generation network arrangement is the electronics and tariff (sic) routing, not the inclusion of fibre nor remotes.
4912 So we're looking at evolution here, not revolution.
4913 Second, network investments are a fact of life for network operators and we've heard some of that today from the cable companies.
4914 Networks are the core of their business after all.
4915 In our February submission we discuss the extraordinary revenues being achieved by the ILECs and cable companies. These are very wealthy companies.
4916 For example, with 2009 service revenues of 2.63-billion and 2009 service operating income of 1.27-billion, Shaw has the resources to continue to invest. It also has the clear intention to do so.
4917 Similarly, in 2009 BCE had over a billion dollars in surplus cash. In Q1 2010, BCE's net earnings went up by 61.3 percent over Q1 2009 to 608-million. Wireline broadband is one of Bell's strategic initiatives. These companies have lots of money and they are spending it on their networks, among other things.
4918 There has also been lots of talk about the alleged high level of risk associated with network investments, but there has been no evidence filed to back up these claims.
4919 No ILEC or cable company has filed any evidence suggesting they are having any difficulty funding their capital expenditures. Neither have they filed any evidence showing that investors expect an unusual rate of return in this era of extremely low interest rates.
4920 On the contrary, here's what Bell's Chief Financial Officer said in February:
"Our capital markets strategy was effectively executed in 2009. We repaid $2.1-billion of debt in 2009 from cash on hand, further strengthening our balance sheet and enhancing financial flexibility. We accessed the debt capital markets on attractive terms this past June to early redeem maturing debt, resulting in interest savings of 25-million annually for the future."
4921 MR. COHEN: Similarly, last December TELUS' Chief Financial Officer said:
"As a result of our prudent financial policies, TELUS has maintained a strong balance sheet with sustainable cash flows and ample liquidity. We have a committed $2-billion credit facility with a syndicate of 18 financial institutions that does not expire until May, 2012. TELUS has also successfully raised 1.7-billion in two transactions this year in the Canadian debt market at attractive interest rates straddling the five per cent mark."
4922 MR. COHEN: If the risk associated with network investments were anywhere near as great as Bell and TELUS allege, investors would demand a premium for providing capital.
4923 They are not doing so. On the contrary, these ILECs can tap the capital markets to the extent necessary at very attractive interest rates.
4924 The suggestion that there should be a special mark-up or upfront capital payment is ludicrous. There is absolutely nothing on the record of the proceeding to support such an approach.
4925 So, what does this mean?
4926 First, wholesale access should be granted to all of the incumbents' broadband networks, not just yesterday's network facilities.
4927 Second, rates should be cost-based. There is no reason to make a special case for newer network facilities.
4928 Third, the mark-up on costs should make a reasonable contribution to common costs but that is all. We believe the Commission's standard 15 percent mark-up remains appropriate.
4929 The Commission needs to cut through the bluster and put in place a robust and economically rational wholesale regime if competition is to revive in Canada.
4930 Thank you very much for giving us this opportunity to make these comments and we'd be happy to answer any questions you may have.
4931 THE SECRETARY: Thank you very much for your presentation.
4932 We will now proceed with Cybersurf and appearing for Cybersurf is Mr. Marcel Mercia.
4933 Please introduce your colleague, after which you will have 25 minutes.
4934 MR. MERCIA: Thank you.
4935 I'm Marcel Mercia, Chief Operating Officer for Cybersurf Corp., and sitting next to me here is David Elder, counsel.
4936 First of all, I'd like to say I'm happy today to come and rely on our perfect God-like regulator to sort this issue out. I certainly have more confidence in you than Mr. Engelhart.
4937 Cybersurf appreciates the opportunity to submit in this public process and give the Commission a comparator perspective to unbundling and other wholesale issues in order to assist the Commission in making a determination on the extent to which incumbent broadband network owners should be required to provide access to unbundled network elements.
4938 In providing the scope of the proceeding in the initial call for comments, the Commission stated:
"The Commission notes that this proceeding is not intended to establish a new regulatory policy framework but, rather, apply the existing regulatory framework as set out in Telecom Decision 2008-17. Accordingly, the issues of whether the provision of high-speed services are subject of this proceeding should be mandated, will be addressed in the context of that framework."
4939 MR. MERCIA: A key element of 2008-17 framework is found at paragraph 17, and this is the essentiality test for new services.
4940 The Commission came to the essentiality test in March, 2008 after concluding a lengthy proceeding instigated by the Governor-General-in-Council in December, 2006 requiring the Commission to conduct and complete a review of wholesale regulatory framework.
4941 In the very section the Commission was directed to complete its review in the Policy Direction, the Governor-General-in-Council also directed the Commission in part to consider the potential for incumbents to exercise market power in the wholesale and retail markets for the services in the absence of mandated access to wholesale service and, the impediments faced by new and existing carriers seeking to develop competing network facilities.
4942 In completing its review, the Commission determined that the then existing access services should remain intact and also required Bell Canada in Telecom Regulatory Policy 2009-34 to complete a review of ADSL access service and to submit tariff proposals for review.
4943 In Decision 2008-117 and Order 2009-111, the Commission further required ILECs to provide access to their higher speed networks including the ones they classified as NGNs.
4944 This brings us to today, where the Governor General in Council has asked the Commission, in part, to review their review of the wholesale regulatory framework, with specific consideration to access to the new investments of incumbent operators, and the symmetry in regulation between ILECs and cable companies.
4945 Cybersurf, first of all, submits that, based on the submissions and arguments to date, which are essentially the same arguments considered by the Commission leading to Decision 2008-17, 2008-117 and Order 2009-111, there would be no reason to draw a different conclusion than it already has, which is that mandated competitive access remains appropriate, and that competitors require access to the higher speed services to effectively compete.
4946 It is particularly noteworthy, in the context of this proceeding, that the incumbents have not satisfied the essentiality test. In particular, they have not demonstrated that there are reasonable wholesale alternatives to the access arrangements in consideration. They have also not demonstrated that the access arrangements being discussed are inputs that are not required by a competitor to compete in the relevant downstream markets.
4947 Furthermore, they have not demonstrated that these access arrangements are duplicable by competitors.
4948 I do not believe Mr. Bibic simply saying that anyone can build fibre to a remote and make use of sub-loops is evidence of duplicability. Evidence of duplicability is that the facility has been duplicated in a meaningful and significant way, and the test is found at paragraph 41 of Decision 2008-17.
4949 The Commission considers that a facility can be practically duplicated if a reasonably efficient competitor could expect to earn sufficient revenue to justify investing in the construction of a given facility. As such, the Commission considers that all potential revenue and costs must be factored into the duplicability analysis.
4950 Cybersurf will primarily be dealing with the issues and arguments surrounding unbundled cable access, the subject of an application that we originally filed in March of last year, although I may touch on some of the ILEC arguments, inasmuch they overlap with some of the regulatory issues presented by the cable companies.
4951 With respect to the cable company arguments, Cybersurf submits that the following are the core issues:
4952 Essentiality -- Cybersurf's proposal meets the test.
4953 In initiating this proceeding the Commission stated in its initial Call for Comments that it was seeking to make a determination that fit into the new regulatory wholesale framework. As discussed already, within that framework a facility is essential if it is an input that is required by a competitor in order to compete.
4954 The Commission has already determined by way of Decision 2008-17 that TPIA is a service that is required in order for a competitor to compete.
4955 In Decision 2008-117 the Commission determined that competitors need to be able to offer the same service attributes in order to compete effectively with incumbents.
4956 In Decision 97-8 the Commission determined that facilities-based competition is preferential to resale. It only follows logically, then, that the service proposed by Cybersurf should also be mandated, as it would allow competitors to truly offer alternative service attributes, such as ITMPs, and it would permit and encourage competitors to build their own facilities behind the leased access network.
4957 By contrast, the current cable high-speed access arrangement does little for innovation or for competitor investment.
4958 A core argument of the cable companies is that access by TPIA already accomplishes what is required in providing like competitive services on a wholesale basis, and further unbundling is unnecessary. This argument is predicated on a narrowly defined interpretation of what the relevant market is, an interpretation whereby only high-speed internet forms part of the market, and the cable company only has to provide apples for apples service aspects. This approach is, of course, both self-serving and inappropriately narrow.
4959 The Commission itself has recognized the convergence of technologies and the continuing importance of bundling services. To accept this argument would require the Commission to ignore its own 2009 Monitoring Report, which states:
"Today's unified data networks are capable of delivering all forms of information, be it voice, data, text or video."
4960 In 2008, over 80 percent of communications revenues were generated by converged companies offering both broadcasting and telecommunications services.
4961 Convergence in the communications industry can be observed through the behaviour of consumers. In 2008, approximately 25 percent of residential customers subscribed to service bundles.
4962 The cable company definition of the essentiality test also fails to take into account that the essentiality test is not concerned with the downstream market, but rather with control over the input, in such a way that it can prevent or lessen competition. Cable company total control of that input under TPIA means that the cable company controls the input that allows -- or rather prevents -- a competitor from defining its own service.
4963 There is no complete wholesale service available today that allows a competitor to control all aspects of its own service offering, because to date the wholesale access products require competitors to adhere to the underlying carrier's IMTP. The fact alone that incumbents control IMTP for all competitors should be reason enough for the Commission to unbundle, particularly in a marketplace where media concentration is ever increasing and access to content will be over IP-based networks -- IP networks with IMTP entirely in the control of the very entities that control the content.
4964 Indeed, in today's world, the convergence of technology denying access to high-speed networks does not only threaten competition in the delivery of retail internet alone, but in all communications and broadcast services, whereas properly priced and enforced access arrangements at least hold the possibility of a multi-competitor market.
4965 Incumbents of all stripes have continuously pointed to emerging technologies as disruptive game changers that would discipline the retail market since access to broadband networks was first mandated before 1999. The truth is that none of those technologies has yet developed to rival wireline services, and the advent of fibre is likely to make that more the case than less the case.
4966 In fact, Mr. Cope, two days ago, alluded to this in his response to a question from Commissioner Duncan. He stated that the reality at the higher end is that "we've always continued to see wireline stay ahead just because of spectrum constraints and technology development."
4967 First we heard that satellite was a game changer, then it was broadband over wireline, then it was utility-deployed WiFi, then it was WiMax, and now it's broadband over cellular.
4968 Of note in this proceeding is that Bell disclosed that it wasn't going to invest in its WiMax network any more, stating that the equipment vendor is discontinuing the product line.
4969 Even if one were to make the leap of faith that wireless was going to discipline the market, then one would first have to accept that wireless is a reasonable alternative to wireline. This is hard to comprehend, particularly considering the words of Mr. Cope, and also considering because the trend in North America is for ILECs to bundle their wireless services to their wireline services, including ADSL.
4970 Also, by far and away, most of the spectrum is in the control of the very incumbents that have control over the wireline facilities. It's akin to the GM of old saying: There is lots of competition. You can buy a Chevy, a Buick, an Oldsmobile, a Pontiac, or a Cadillac.
4971 In fact, Mr. Cope also alluded to the fact that Bell Consumer Services and Bell Mobility coordinate with respect to retail pricing for competing wireline and wireless products. What kind of competition is that?
4972 In accordance with the terms of the Commission's wholesale framework, mandated wholesale access, in compliance with the essentiality test, has to continue until it can be demonstrated that reasonable wholesale alternatives exist, meaning that the Commission, in recognition of the competitive nature of the retail market -- the Commission may have already provided forbearance.
4973 However, the essentiality test and the policy direction still require the Commission to intervene to ensure adequate wholesale solutions, given ongoing incumbent control of the wholesale market, with the resulting impediments to market entry.
4974 A lot of the cableco opposition to the Cybersurf proposal rests on arguments that the proposal is not technically feasible. These arguments are difficult to argue in a public hearing forum, since it requires a fairly deep dive on technology.
4975 Moreover, the cable companies each have differences in their network topology, making the problems and solutions a little different in each case.
4976 As a result, a real examination and airing of technical issues can really only be handled thoroughly through a Commission working group.
4977 That said, Cybersurf has prepared a table addressing the broader technical arguments raised by the cable companies for the Commission's review. We would be pleased to discuss it in detail here, or to file it for later review and examination by the Commission and interested parties.
4978 It is noteworthy that when the Commission posed pointed interrogatories to the cable companies to provide solutions to the technical objections they had raised, the cable companies largely ducked, relying on their technically impossible argument. In Cybersurf's view, the fact that something may require some effort or have some cost attached to it does not make it technically impossible.
4979 The cable companies' objection in this regard only works if we accept the premise that they have no obligation to assign any capital to support competitor access, that they don't have to make capacity available, and there would be absolutely no cooperation between the competitor and the cable company in provisioning cable modems and RF usage. None of these assumptions is valid, or should be accepted by the Commission.
4980 Different parties have submitted different conceptual access arrangements that suggest how each cable company's deployment of a fully unbundled solution could theoretically work. In response, the cable companies have submitted a paper from CableLabs. But, interestingly enough, the CableLabs paper does not say that intersection is impossible; rather, it says that the approach presents a number of difficulties that would greatly affect the implementation, practicality and challenges of putting the Picard reports' three theoretical approaches into commercial practice.
4981 In other words, some work would have to be done. This is a long way away from technically infeasible.
4982 Again, the CableLabs report really just supports the cable companies' argument that unbundling may interfere with their planned offers, will require some investment not only to support, but also to employ techniques to recover bandwidth lost to competitors, and will be technically complicated. Such efforts and expense are not atypical for new wholesale arrangements. We have been hearing the same thing from these incumbents since the early days of toll competition.
4983 Moreover, the fact that an activity may be inconvenient or expensive for an incumbent is simply not part of the test for mandating unbundled services.
4984 There is another aspect of the cable argument that requires clarification. In the cableco submissions there seems to be an assumption that cable companies will have to give up control of spectrum, and, moreover, that there will not, or cannot be any cooperation between the parties in provisioning cable modems.
4985 In an interrogatory response, Rogers stated that all provisioning of DOCSIS equipment was done by a single entity, including TPIA modems. In the same interrogatory round, competitors and Bell questioned the cablecos as to why the cable companies couldn't then apply service standards and QoS defined by the ISP. After all, the cable companies use the same network to provision different service levels for their own services, with different attributes and IMTPs. Even if telephony is done on discrete bearer channels, it still uses the same CMTSes and media controllers as the internet service.
4986 Since this is the case, why couldn't an ISP ask the cable company to set the IMTP, QoS and speed attributes for the wholesale service obtained by the ISP through the cable company? This is essentially what the cablecos already do for themselves. This is also exactly the procedure envisioned in Bell's ADSL access service, an obligation Bell already has to provide competitors DSLAM ports in the manner described by the competitor, for its own end customer.
4987 The cable company response was not that such was impossible, but rather that an ISP could potentially use a disproportionate amount of bandwidth, affecting the service of other customers on the node.
4988 How, exactly, is that technically impossible to manage? That can be managed through costing and policy approaches.
4989 It is interesting to note that each and every cable company in question has deployed 35, 50, 70 and 100 meg services for their own customers. It is not clear, exactly, what it is that a competitor is going to do that the cable company would consider disproportionate, especially considering that if costed properly, a competitor would have the same economic incentive or disincentive to deploy a service.
4990 Indeed, these "technically impossible", by virtue of better uses for the bandwidth, are red herrings to try to ensure that the current access arrangements, which permit cable companies to define the service of their competitors, remain intact.
4991 To illustrate the inconsistency in the cable companies' limited bandwidth argument, consider that, from the beginning, Rogers and Shaw deployed their telephony over discrete 6 megahertz bearer channels. So, whilst simultaneously arguing that cable bandwidth is a scarce resource, they use those resources in the most inefficient way possible for their own services, forgoing the bandwidth efficiencies that are gained in the DOCSIS 3.0 standard - meaning setting these channels aside before having any actual local phone customers, yet contending that competitor access would be a horrendous waste of bandwidth given low initial subscriber numbers.
4992 It is easy to see that the disproportionate use argument is based on the same underlying philosophy as all of the other cableco arguments, that its regulatory obligation is subordinate to its business decisions and will only be tolerated if there is no cost and some advantage to the cableco in complying, specifically meaning that the scarcity argument is based on an assumption that the regulatory obligation to provide access only comes in when there is spare capacity of some sort.
4993 In conclusion, what is required is for the Commission to create the opportunity to invest and to have profit potential through proper costing methodologies, to encourage facilities construction for sustainable competition.
4994 The Berkman Center Report states that the Commission costing approach, thus far, sees the highest rates for unbundled network components in the OECD. This issue has to be addressed if the Commission wants to see new entrants build their own facilities.
4995 Cybersurf encourages the Commission to create access arrangements that will encourage competitor investment. In this way, other competitors and incumbents will need to make similar investments to compete. The notion that increased competition dampens investment is counterintuitive to the mandate to create competition to spur investment, and comes with no evidence and has been disproven worldwide.
4996 Competitor proposals, although arguably fraught with problems of their own, at least hold the possibility of a multi-competitor marketplace, not just in retail internet, but also in all IP-based services, to the benefit of Canadians at all levels of industry, from access to applications and content.
4997 More providers means more possibilities and opportunities for applications and content producers, opportunities that otherwise would not exist, because their scale is too small to be considered by an incumbent, or because it directly competes with a cross-media property.
4998 The incumbent proposals, inarguably, will see a duopoly in the market for the foreseeable future, and increased media concentration. The government will have to rely on the profit motivations of a few entities to benefit the Canadian public in seeing higher speeds, lower prices, and competition neutrality in IMTP.
4999 The Commission will have to increase its reliance on the incumbent operators to remain content neutral and invest in locally produced applications and content.
5000 The current access arrangements do not provide a means for any real competition, requiring service providers little flexibility to define their own service. This stifles innovation and investment, as competitors must continue to permit incumbents to define their service offerings and the marketplace.
5001 For the possibility of facilities construction and real competition to take hold, competitors need cost-effective, graduated unbundled access arrangements, arrangements where a competitor can enter the market, secure revenue and a user base, and then amortize investment to lower delivery costs and take reasonable risks to deploy and try new technologies.
5002 In Cybersurf's view, unbundling the networks so that the competitor can only buy the essential components it requires is the only real way to ensure fair economic entry, not interfere with market dynamics, and ensure that regulation is proportionate to its purpose.
5003 The question then to be solved by the Commission is if it believes that the status quo is going to bring to fruition a multi-competitor market. If not, is the Commission content to entrust Canada's technological future and world leadership to a duopoly?
5004 Moreover, it is important that the Commission clarify wholesale access obligations quickly, before NGNs get built out in a way that makes it extremely difficult for competitors to gain meaningful access. The incumbents have an incentive to make wholesale access difficult by design.
5005 You will see that there is the accompanying table which was mentioned. I know that you don't want to go into a high-level technical discussion, or a low-level technical discussion. I provided the paper for your review. If you have questions, I am happy to answer them, or, as we mentioned, we can submit them in reply.
5006 THE CHAIRPERSON: First of all, on page 9 you talk about this document. Would you please file it, so that others can have a look at it and comment on it?
5007 MR. MERCIA: I'm sorry, I didn't quite hear that.
5008 THE CHAIRPERSON: On page 9 it says that Cybersurf has prepared a table addressing the broader technical arguments raised by the cable companies for the Commission's review. "We will be pleased to discuss it or to file it later for review."
5009 So file it with Madam Secretary, please, so that others can have access to it online.
5010 MR. MERCIA: Yes.
5011 THE CHAIRPERSON: Thank you for your submission, both of you.
5012 You were here this morning. We had a very lengthy discussion with the cable companies, and the one thing they said is that they are not in the business market. They would like to be, but they don't see themselves -- they see the difficulty of getting into it.
5013 And as far as the wholesale market, you guys essentially -- you are not interested in the business market, you are only interested in the residential market. Therefore, dealing with TPIA and making it more similar to aggregated ADSL makes no sense, because that is the not the market you are going after.
5014 Can I have your comments on that?
5015 MR. COHEN: We are interested in the business market as well as the residential market, but I don't think that the absence of business coverage was really what led Distributel to become a Gateway Access Service customer first. Really, it was the ubiquity of the coverage that we would be able to achieve with a single point of interconnection. It has to do with aggregation, so --
5016 THE CHAIRPERSON: That is my very point. Right now you have multiple points of aggregation. If you want to go into TPIA -- if TPIA was forced to be offered as a single point of aggregation, would that be an attractive alternative to you?
5017 MR. COHEN: It would certainly make it more attractive.
5018 Now, since the acquisition of the Cybersurf operations, we are in the TPIA business. For those who don't know, Cybersurf, I think, was really the pioneer of the take-up of TPIA.
5019 But there are some very significant differences that are caused by the lack of aggregation.
5020 We heard someone say today that rates for TPIA and GAS are comparable. They are comparable on the per-subscriber side, but what has to happen is, you have to somehow backhaul the TPIA points of interconnection to some central location, where you are going to ultimately connect to other service providers or the internet.
5021 Just to give you a rough figure -- and I know that lots of people have been asking for rough figures -- from what we assumed from Cybersurf, we have many, many situations where the points of interconnection were backhauled, at a cost of about $2,000 per month for the facility.
5022 And, of course, this is a big generalization. It varies a lot, depending on where and how far and that sort of thing.
5023 But for $2,000 a month we could get an E-100 that would serve, maybe, 400 customers. That puts $5 a month on top of the approximate $20 per subscriber that you are paying, and that $20, in the case of GAS, already includes all of the aggregation, or most of it anyway. There is a little piece that you have to -- interconnecting piece that, I think, costs us about, roughly, 50 cents per subscriber, to attach to Bell's GAS.
5024 So the price differential -- the fact that every time you have, for us, a point of interconnection that we have to reach, we have to start out and build it up to a fair volume before we are paying for it.
5025 I mean, when we only have ten customers on that $2,000 facility, it is costing us $200 a customer.
5026 THE CHAIRPERSON: Okay.
5027 MR. MERCIA: I have included some of the reasons in my submissions. I'm surprised that you all don't remember them.
5028 MR. MERCIA: The reason that ISPs don't take up TPIA isn't because they are not interested in TPIA, it's because we managed at Cybersurf to intersect four of the largest cable companies because we had a regulatory lawyer on staff.
5029 If you try to intersect with a cable company, you are going to be met with immediate resistance. You are going to be directed to talk to their regulatory people -- Mr. Watt, Mr. Brazeau, Ms Snow -- and you have to pretty much know what you are talking about, or they are going to frustrate your access.
5030 That's why -- along with, there are cost considerations, as Mel pointed out. There are significantly more costs, which might make it unattractive to smaller ISPs, but I would say that ISPs in Distributel's league, TekSavvy -- which, by the way, has been using our ex-regulatory lawyer to gain access to Rogers.
5031 I get asked all the time from CAIP members how to get access to cable.
5032 THE CHAIRPERSON: The second thing that you heard this morning, I think, in a moment of frankness, was that Mr. Engelhart said that this whole issue of mandated access is really a very unhappy solution. It doesn't fit. It's unnatural. Either you compete or you don't, but forcing people to resell a proportion, which they really don't want to, to people who are their competitors, who compete with them -- structural separation is one way, or full facility competition is another, but this unhappy medium that we have created really doesn't work, and he essentially has no faith in it, even if we modify it.
5033 At least that is what I read into his comments. Maybe I do him an injustice.
5034 But even if we modified the terms, it would never really result in meaningful competition.
5035 Is that true? Are we dealing with something here that doesn't work?
5036 MR. MERCIA: I think of the words of Winston Churchill: It's the worst system in the world, but it's the only one we've got.
5037 MR. MERCIA: I think that the difficulties and friction between competitor and incumbent largely come because of enforcement issues, frankly, from the Commission. There really isn't a lot of oversight when a competitor goes and tries to implement or intersect a competitor.
5038 For example, in order for us to get to Shaw -- and it's on the record -- we came before the Commission four times, at a legal cost of about $300,000.
5039 It's just attitude.
5040 Whereas Bell and TELUS, I have to say, over the years have developed more acceptance. They have service people, and they have service support. I call them up and say, "I want to buy something," somebody will come and sell it to me.
5041 Well, maybe not me, but somebody will come and sell it to them, and the cable companies just don't have that.
5042 Now, Mr. Engelhart alluded to the fact that they don't have a fully developed business process. I know that with TPIA, initially, only one provided any kind of billing or billing support.
5043 I can give you some statistics anecdotally. For the longest time we were Rogers' only TPIA customer. We were one of two of Cogeco's TPIA customers. We were Shaw's only TPIA customer. And Videotron, in some interrogatories, stated that they had 300.
5044 The difference is, Videotron had a service desk. They had people committed to selling and supporting service.
5045 So it is disingenuous to say that nobody wants it, and it's a commercial failure, but then when people show interest in it, you do everything in your power to obfuscate the sale of the service.
5046 THE CHAIRPERSON: Okay. Thank you.
5047 Elizabeth, do you have some questions?
5048 COMMISSIONER DENTON: I have lots of questions, and I am mindful of the time.
5049 I have to say that there is a lot of material in the presentation you made today, so before we go into the questions that I have here, I would appreciate it if you could just sort of summarize for me exactly what it is you are looking for.
5050 MR. MERCIA: Who is that question directed to?
5051 COMMISSIONER DENTON: Both of you.
5052 MR. COHEN: I think that, overall, we are looking for a wholesale regime that provides us with the kinds of inputs we need -- low-cost, unrestricted, but compensatory to the suppliers.
5053 We are not looking for a free ride.
5054 In fact, one of the principal points that we believe is that the services we buy should be really cost-based and not arbitrarily priced.
5055 COMMISSIONER DENTON: So the services that we are considering, then, are the CO-based service and the head-end based.
5056 You are interested in both of those services?
5057 MR. COHEN: Yes.
5058 COMMISSIONER DENTON: Are you using the TPIA?
5059 MR. COHEN: Well, we have --
5060 COMMISSIONER DENTON: Inherited it.
5061 MR. COHEN: Having purchased Cybersurf, we now have a number of TPIA interconnections, and I have already alluded to the fact that there are some aggregation issues between TPIA, which is connection at the head end, and the GAS service, which is connected, in Bell's territory, once for the province.
5062 For the telephone companies, to have something more disaggregated would make sense, but I don't know that the central office level is necessarily the right level. I think that the motivation or the impetus behind looking at a central office-type interconnection was that that would really restrict the inputs to the essential facilities, because the backhaul from the central offices to any other point would be something that may be available in the competitive market.
5063 That may be true, but the economic reality of having to build out to so many central offices really makes it a very, let's say, inaccessible means of access.
5064 I mean, it's doable, and it really depends on your volume. How many customers do you have before you can do it?
5065 That's why we have sort of said we need two levels. We need an aggregated level so that we can amass a certain number of customers and then something hopefully that would be less expensive or a smaller margin built into it for the suppliers that would -- sorry, Don, you wanted to say something?
5066 MR. CAVANAGH: It may also give us more control over the quality of service for those lines.
5067 COMMISSIONER DUNCAN: Okay. So just dealing then with the ILEC service, as I understood it, you interconnect at one point and you can reach all of their customers in Quebec and Ontario. So you don't want that degree of aggregation. You would like less degree because you are paying for more transport I take it, than you would like to pay for?
5068 MR. COHEN: I think that what we kind of envisioned with the CO-based was something that would get us away from a UBB-type approach or a throttling or that sort of thing. But I don't think that the central office is necessarily the right place to do that.
5069 We kind of like the model that Keith Stevens was suggesting of something akin to the LIRs. It would be more economical than trying to reach into every central office. It might very well align with what the telephone companies have said themselves is a more natural aggregation point for them.
5070 Way back in the beginning of this proceeding when it was still just an ADSL-CO proceeding, they said that ADSL-CO interconnection was not feasible or practical because the equipment that they have in the central offices doesn't really have an access point. They said -- they kind of alluded that their broadband access servers might be a more natural place to interconnect.
5071 I think that makes more sense from our perspective in terms of the economics of the number of points of interconnection you have to make and from their perspective from where the equipment comes together naturally.
5072 COMMISSIONER DUNCAN: But your concern is --
5073 THE CHAIRPERSON: Can we just take a short break while we wait for our colleague to come back? He had to leave for a second.
5074 COMMISSIONER DUNCAN: Oh, sure.
5075 THE CHAIRPERSON: Okay, let's go back.
5076 Next question, Elizabeth?
5077 COMMISSIONER DUNCAN: I think that's fine, Mr. Cohen.
5078 I had a chance to look over your notes and I think you are addressing what we asked. So I'm with you. I think what I will do largely then is, we expect that both the ILECs and the cablecos are going to respond to what you are asking for in their responses over the next couple of days.
5079 I am interested in -- Mr. Mercia is it?
5080 So we are dealing with the cable companies using the TPIA and now you are in business again in different centres. Is that the idea?
5081 MR. MERCIA: No, we are doing a different business. We are waiting for the outcome of this proceeding to see if we will re-enter business with cable.
5082 COMMISSIONER DUNCAN: Okay.
5083 MR. MERCIA: Yes.
5084 COMMISSIONER DUNCAN: So you are not in the business right now?
5085 MR. MERCIA: No.
5086 COMMISSIONER DUNCAN: Because they did give us a lot of points on why they couldn't do the kinds of things that you are looking for.
5087 MR. MERCIA: Well, I think -- I gave you the technical outline here and I think to put it in context we should look at it in context of what they said. We took a unidirectional network for RF broadcasting distribution and we made it bidirectional. We went from a six-channel universe to a 40-channel universe to a multi-hundred channel universe. We added internet, we added voice telephony, we are adding business solutions; we added video on demand.
5088 Oh, you want to intersect with us, no, that's technically impossible to do. I can tell you, it is not technically impossible to do and we will get into a bun fight about it.
5089 So I would recommend if there is any doubt in the Commission's mind about the technical possibility of intersection that it would probably be through third-party consultation from the Commissioner, if there is any doubt. There is no doubt in my mind.
5090 I think that their reluctance to do intersection is predicated on a lot of assumptions and worst-case scenarios and mountains out of mole hills.
5091 You know I have been in CISC and what if somebody goes in six coax in a toaster? What if somebody goes and does something to a node that takes down a whole segment? These guys use contractors. They use a lot of contractors and they control those contractors to manage their network. So I don't -- I'm really at a loss at these technical obstructions they put in the way.
5092 I'm not trying to downplay and say it isn't going to be technically complicated, but I don't see how it's any more technically complicated than a lot of the facilities ILECs have to provide, particularly LNP or BLIF. So I just don't think it is a wash. I think the Commission really needs to dig down.
5093 I notice in their responses that they didn't give any solutions. They just hid behind the disproportional bandwidths argument. And I can tell you today that that is their business. They reclaim bandwidth and find ways to use it. That's what they do.
5094 COMMISSIONER DUNCAN: So we will wait and see, as I say, what they say in response to your statement.
5095 MR. MERCIA: We could drop the CBC. We could do that, too.
5096 COMMISSIONER DUNCAN: My next question was, though, I think that we have been very successful in developing the cable television service and now the ILECs want to compete, are preparing and are already delivering an excellent IPTV service.
5097 I don't think or do you think as a matter of policy that we want to be compromising what the individual homeowner is able to receive now as a television package for the sake of being allowed -- of doing this?
5098 MR. MERCIA: Yes. I mean, there is an assumption that it will be compromised. As I said, they went from six channels to multi-hundred. I submitted Comcast in the United States -- 900 channels. They can recover the capacity, there are ways to do it, but it costs. It costs money. There is no segmentation changing filters. There is no doubt about it.
5099 However, I don't see how those costs -- in fact our friends at Bell say their costs are lower than what Bell's costs were to deliver ADSL access service and particularly higher than -- or lower than it would be to deliver access to the fibre networks.
5100 COMMISSIONER DUNCAN: Just going -- I believe Mr. Cohen, you mentioned about the incremental cost. Was it you that mentioned on the costing side of things that they should be recovering the incremental cost in their rates?
5101 MR. COHEN: Phase II costs is what I was referring to, yes.
5102 COMMISSIONER DUNCAN: Okay.
5103 MR. COHEN: I think Chris had something that he wanted to add about the recovery of bandwidth, the analog to digital.
5104 COMMISSIONER DUNCAN: Sure.
5105 MR. TAYLOR: This issue we actually addressed in the October round. We asked interrogatories on the basis of the June 2009 submissions about cable capacity looking at basically how much analog versus digital capacity they had.
5106 So in that submission we talk about how much typically -- and I am reading from the submission, the information provided shows that they have anywhere from 49 to 74 analog channels. Those analog channels in theory can all be harvested as of August 31, 2011, in theory.
5107 If they choose not to harvest them that's a business decision that those cable companies would be making, but that business decision should not prevent consumers from enjoying competition in broadband internet services. They shouldn't be able to block competition because they don't want to harvest analog channels that are basically, frankly, an inefficient use of that capacity. You could take 10 of those analog channels, dedicate them -- that is 60 MHz worth of capacity -- dedicate that to competitors for broadband internet and you have a viable competitive market on the cable side.
5108 And it costs them nothing compared to what they are doing on their digital television services or whatever. They still have an extra 40 or 50 analog channels that they can harvest and turn into those 50 analog channels. 40 or 50, is another 400, 500 standard definition video channels.
5109 You know, like they have a lot of capacity available to them if they choose to use it efficiently. They should not be permitted to block competition because they decide not to use their capacity efficiently.
5110 That is not a good reason for the Commission not to follow a good policy on the telecom site. That's our view, anyway.
5111 MR. MERCIA: Also, I wanted to make the point they have raised a lot to deal with -- the cable plant can only be managed by one provider. Cybersurf's proposal doesn't require them to give up management. It only requires them to give up bandwidth. They don't have to give us dedicated 6 MHz channels and never change them. It is any 6 MHz channels.
5112 Everything is on a DOCSIS standard, just like in the GAS or the DSL world. They get to tell you what kind of equipment you can deploy, what protocols you have to follow. Nobody asked them to give up management or suggested -- well, we didn't anyway -- that there would be two heads trying to manage the network.
5113 We gave options saying we can co-locate or not co-locate; we can provide the hardware or not provide the hardware. We can manage it or co-manage it or you can manage it.
5114 They didn't accept any of those scenarios because it's just clear they just don't want to do it.
5115 COMMISSIONER DUNCAN: So we would look to hearing a response from the cablecos over the next few days and we certainly are able to ask the questions as well ourselves. I take it, Mr. Taylor, you didn't see any further feedback on your comments?
5116 MR. TAYLOR: There was an ominous silence in response to our October submission.
5117 COMMISSIONER DUNCAN: All right. Thank you.
5118 All right. I'm just going to move right along because I think that you have covered a lot of material here.
5119 Cybersurf, at the moment you are not offering any bundles.
5120 But Distributel, perhaps I could just ask you the kinds of bundles you offer customers today?
5121 MR. COHEN: Yes. We have high speed internet and VoIP-based home phone service that we bundle together, sometimes with the addition of long-distance, if customers want a flat rate long distance package. We don't have wireless or television in our bundle.
5122 COMMISSIONER DUNCAN: No. Would your hope eventually be able to offer an IPTV-equivalent type service, is that --
5123 MR. COHEN: It's interesting, yes. It's not part of our business plan at the moment, but certainly.
5124 COMMISSIONER DUNCAN: It's possible.
5125 So what types of services do you envision down the road if these changes are approved, if the high-speed mandate -- if the high-speed decision is upheld and the CO access is approved and also the aggregation is taken into consideration that works better for you, what type of service are you looking for down the road?
5126 MR. COHEN: I'm not sure that we necessarily are looking -- that we have new services in mind right now. I think we would just like to be a little more competitive with what we have right now.
5127 MR. MERCIA: We are. That's the basis of the application, is what we are, you know, looking at doing is providing over an unbundled -- I think probably not an IPTV service like Bell's, because it is a lot of bandwidth, but we could deliver tiers, we could deliver video on demand and we could deliver a la carte services. That is essentially the reason we ask for the unbundled service.
5128 I think one of the cable respondents here had said "Oh, you can do video over TPIA" and technically that's true. However, there is no QoS, so you are not going to deliver anything with any kind of consistency or quality over a TPIA.
5129 COMMISSIONER DUNCAN: So the Q of S, if I understand it, is only going to be to your satisfaction if you have control?
5130 MR. MERCIA: No. Our initial kick at the cat was asking for ask us to package cable QoS and I think the Commission was reluctant because the cableco successfully, I think, made it synonymous to access to the telephony network when it isn't at all.
5131 The DOCSIS centre contains several different QoS-type approaches. Packet cable allows dynamic QoS, QoS on-the-fly to apply QoS to specific types of applications. That's all we wanted.
5132 If TPIA had that functionality it would be comparable to unbundling them. It would have the same functionality except we couldn't manage IMITMPS and we couldn't dictate the throughput speeds.
5133 Now, what they had mentioned is the throughput speeds are becoming less important. At 100 megs it's true. What are we going to offer, right?
5134 But we don't -- we can't -- we have no say in how much bandwidth, we have no say in the QS and the other problem with just a packet cable access solution, there is still no opportunity to invest and control your costs.
5135 We would have to rely entirely on the cable company, on a tariff and there is no opportunity for us to ever own or build onto that network, other than backhaul.
5136 COMMISSIONER DUNCAN: Okay, thank you.
5137 Distributel, I understand that you have a provision of service that is 5 to 7 Mb of residential, retail, high-speed service.
5138 MR. COHEN: 5 Mb per second.
5139 COMMISSIONER DUNCAN: Five.
5140 MR. COHEN: Where it's based on the Bell GAS, with the TPIA is much higher.
5141 COMMISSIONER DUNCAN: Okay. So the GAS or the ILECs -- so the GAS service is only up to five. It's limited to that.
5142 MR. COHEN: It has been constrained, yes. It didn't used to be that, but it got constrained.
5143 COMMISSIONER DUNCAN: Okay.
5144 MR. COHEN: It used to be higher or it used to be pretty well in line with what Bell was offering themselves.
5145 COMMISSIONER DUNCAN: Okay. I'm wondering if these services aren't approved, what would you see your business looking like in five years?
5146 MR. MERCIA: I'm just glad I sold it to him when I did.
5147 COMMISSIONER DUNCAN: So it's pretty critical.
5148 MR. TAYLOR: Which is why he is so slow to answer.
5149 COMMISSIONER DUNCAN: Okay. Bell and TELUS separately submitted that they would have to incur system development implementation costs of about a million and a half dollars in order to introduce the services which I believe was -- that was the CO-based service -- I just want to make sure I have the right service -- that was the CO-based service.
5150 I'm just wondering how you think that should be distributed amongst competitors. How should they recover that cost?
5151 MR. COHEN: I'm not sure I understand the model that requires that. Is it backhauling from all of their broadband access services?
5152 COMMISSIONER DUNCAN: No, I think he's talking about development to be able to provide this service.
5153 MR. COHEN: But I mean what does that development consist of? I mean if, as they originally claimed that the central office was not a natural point of interconnection and so they are backhauling from their aggregation point to the central office to permit aggregation, it's hard for me to answer how that cost should be allocated because it is an absurd solution.
5154 I'm sorry.
5155 MR. MERCIA: I know on the TPIA side the Commission -- TPIA requires intersection builds.
5156 At first we were paying intersection builds based on costs provided on a per entry basis by the cablecos. The Commission then went to scale for costs for intersection.
5157 OMMISSIONER DUNCAN: So I have a question here to ask you whether you considered fibre to the node and next generation service, but I think you have both indicated that you don't.
5158 MR. MERCIA: Yes. I mean, next generation service has a specific meaning in the industry. I don't think a next generation network has to be fibre is the thing, and I don't think just because it is a next generation network that has removed any of the impediments to market entry.
5159 I don't understand how one relates to the other. It's an overbuild of the existing network to create more capacity, something the cable companies have been doing for 30 years.
5160 MR. COHEN: I don't think next generation network is much more than a marketing hype honestly, because of the fact that not only were fibre and remotes used to provide the gateway access service in the past, but fibre and the modern remotes were being used to provide the gateway access service when suddenly one day the NGN term appeared in Bell's regulatory submissions.
5161 But in fact in my own residence my GAS service that I get -- you know, I'm using Distributel's high-speed service at home. It is purchased through GAS and it is served by one of these new remotes. It's just nonsense to say that that is something that we can't have access to. And the way that happened was quite amazing.
5162 I got a phone call from a Bell telemarketing rep asking if I would like to have a 7 Mb per second service at home and my own GAS-based Distributel DSL service was running at about 1.2 Mb per second. So I said well, you must be meaning up to 7 Mb and the answer came back, oh no, we have 98 percent confidence that we can give you not only 7 Mb per second, but 10 Mb per second or 16 Mb per second.
5163 So I took them up on their offer of a free trial for 30 days and within a couple of days my Distributel GAS service was working at 7 Mb per second before I received the Bell modem in the mail, which I promptly sent back.
5164 MR. MERCIA: You should be getting a bill any time now.
5165 MR. COHEN: What's that, I'm sorry?
5166 MR. MERCIA: You should beginning of bill.
5167 MR. COHEN: Anyway.
5168 COMMISSIONER DUNCAN: Are the current wholesale services that are available to you limiting your ability to offer new innovative services and, if so, what other kind of services would you meet?
5169 MR. COHEN: I'm not sure. I think one of -- you know, the contribution that Distributel has made in the past 20 years or so to the marketplace hasn't been so much different things that other people aren't providing except maybe choice, pricing, packaging, different types of customer service.
5170 You know, we answer the phone live, we don't put you through a 20 step voicemail or something like that.
5171 So it's just -- I think really that's our contribution to the marketplace and the higher speeds would give us just an opportunity to be at pace with the marketplace more so than new, innovative services. I know we have innovated in different ways in the past. We have done interesting things with dial access, you know, but it's not -- it's not what is driving me to be here today. It is just to be viable in the marketplace.
5172 COMMISSIONER DUNCAN: Have you been able to negotiate the purchase of any services from the ILECs or the cablecos for that matter as a result of a commercial negotiation, services that aren't mandated?
5173 MR. COHEN: That's interesting. I was hoping someone would ask me about commercial negotiations with the large incumbents. About two years ago Distributel hooked up with a group of entrepreneurs that had a great deal of experience in the wireless telephone market and we were going to be their venture capitalists. We were going to finance their venture entirely.
5174 At that point there were only three wireless carriers. Two of them just really weren't very interested in discussing with us. The third one discussed with us at great length, negotiated a contract with us and then, well, put us through a number of cases.
5175 At one point in the contract negotiations they said the MVNO or its affiliates cannot compete with us in any area, which automatically eliminated Distributel from being an affiliate. So we had to retract from being the primary funder of the venture to being a half -- to having a one-third ownership interest to satisfy that requirement.
5176 And then after all the negotiations, and an actual contract had been negotiated, they refused to sign it. Eventually the CEO had to go back to work somewhere and the whole thing just fizzled.
5177 So I don't have a lot of faith in negotiated solutions with large incumbents that just really aren't interested in being a wholesale provider to us. That's the reality of it.
5178 COMMISSIONER DUNCAN: Okay. Thank you. Time constraints, that's my questions.
5179 Thank you.
5180 THE CHAIRPERSON: Thank you. Marc...?
5181 COMMISSIONER PATRONE: Thank you, Mr. Chair.
5182 Hopefully we can run through these fairly quickly, and good afternoon.
5183 I want to pick up on the issue of negotiations. As you know, that is one of a number of proposals that has been floated through this during this proceeding, among them that negotiations be created, a framework for negotiations being mandated that would allow both sides to come to some sort of agreement on wholesale rates.
5184 Do you see those as feasible in any way? I know you have touched on that, Mr. Cohen, but can you please expand on whether or not if there was some formal framework setup whereby there could be discussions mandated to take place in good faith, that that is a reality that this Commission should look at?
5185 MR. COHEN: It may be possible, but there has to be some way of breaking the deadlock because the two parties are basically coming from opposite points of view. You know, we want the rates as cheap as possible, and they want them to be priced so high that they are above retail.
5186 As long as there is a way to break through that, I don't see a problem. I mean Distributel also sells wholesale, too, and I am in the process of negotiating with one of my wholesale customers.
5187 I have been very forthright in presenting our costs. He has been forthright in presenting his market conditions and I expect that we will reach a settlement that is fair to both of us.
5188 But we are interested in having that fellow as a customer, you know, and the guys that we are negotiating with aren't interested in having us as a customer.
5189 COMMISSIONER PATRONE: You are talking about some kind of baseball arbitration, that sort of thing, whereby offers are tabled and one is chosen by the regulator, presumably? Are you saying that that would be the deciding factor?
5190 MR. TAYLOR: I mean, we haven't given a huge amount of thought to this, but that would certainly be one possibility. But I guess what Mel is saying is that the type of situation that was alluded to by SaskTel where you have mediation but no decision-making --
5191 COMMISSIONER PATRONE: Right.
5192 MR. TAYLOR: -- thank you, but no thank you.
5193 You would need some form of arbitration and baseball is not a bad one.
5194 COMMISSIONER PATRONE: Speaking of SaskTel, they also tabled a proposal for a 10 year regulatory holiday that would allow them to continue with their rollout and give them a chance to recoup their investment.
5195 Your thoughts on that?
5196 MR. COHEN: Well, I don't know if I will still be around in 10 years. That's a very, very long time.
5197 COMMISSIONER PATRONE: What about the proposal by Bell that calls for competitors to undertake a fibre build on the central office to the node? How realistic is that?
5198 MR. MERCIA: Can I have that one?
5199 COMMISSIONER PATRONE: Go ahead, Mr. Mercia.
5200 MR. MERCIA: You know it's in what they say. Bell said it cost them $1.3 billion to build fibre in four cities with 75 percent market share, revenue coming in and customers to bundle to.
5201 Mr. Englehart sat here and said $5,000 spend for one business customer was too much. So try $1.3 billion spend with no customers.
5202 I could see that being in the context of a graduated system that might be a possibility at an endpoint, but not moving from GAS to that. I mean it will be like ADSL access service. There are few takers because the costs are exorbitant.
5203 COMMISSIONER PATRONE: Yes, go ahead.
5204 MR. TAYLOR: If I could just supplement very briefly?
5205 COMMISSIONER PATRONE: Yes.
5206 MR. TAYLOR: We have put some information on about the financial status of the ILECs and we heard on Monday one of the representatives of Bell saying with respect to building fibre to the node, "If we don't do it nobody will". That basically says you have to have the kind of resources that Bell has. Bell is the largest company, communications company in Canada, and other than the oil companies the biggest in terms of capital.
5207 COMMISSIONER PATRONE: Okay. So you are saying it's pie in the sky?
5208 MR. TAYLOR: You got it.
5209 COMMISSIONER PATRONE: Regarding your statement, Mr. Cohen -- Mr. Bibic, on page 15 of the Distributel submission wants to -- and I believe he deviated from your text. If I heard you correctly say that Mr. Bibic wants to restrict you to the copper or legacy network, did I hear you correctly? If so, where did that come?
5210 MR. COHEN: Just it was an inference from the fact that he claimed that the legacy network was pure copper. So if we were going to be restricted to the legacy network, I guess that's what he meant.
5211 We just take issue with the fact that the legacy issue is not pure copper.
5212 MR. TAYLOR: We take issue with the fact -- the idea that there is a legacy network. We think it is all one network.
5213 COMMISSIONER PATRONE: Okay. I thought when you said restricted to the legacy network that you meant that somehow there would be sort of a two-tiered system whereby the facilities-based operators would have access to the fibre networks and that there might be -- that the secondary or quote/unquote "legacy network" would be available for companies like yourselves?
5214 MR. COHEN: That is implicit in the way Mr. Bibic has been structuring his omissions in this.
5215 Up until Monday it appeared that what he wanted to restrict competitors to were the pure copper loops and the older fibre to the older remotes with the copper from that node to the home. But on Monday he described -- and he called that, all that stuff, legacy.
5216 On Monday in his conversation with the Chair, he used the word -- he said legacy means copper only. If you have fibre in it that means it's a next generation.
5217 So putting the pieces together, he suddenly made his earlier proposals even worse, where you wouldn't even get access to the 5 Mb service because you need a remote. Instead you are going to the pure copper all the way. That's all we were responding to there.
5218 COMMISSIONER PATRONE: In the absence of matching speeds, do you think that there is a market going forward for a value internet product of, say, 5 to 10 megs, assuming you have access to, once again, a quote/unquote "legacy network"?
5219 MR. COHEN: There is probably a market segment that that would appeal to, but I don't want to restrict my business to it.
5220 COMMISSIONER PATRONE: I understand you don't want to. I'm simply asking you if you think that there is a market for that value customer, if you want to call him that, or her that, that is satisfied with lower speeds at perhaps lower prices?
5221 MR. MERCIA: I think the ILECs actually presented some information about takers on their slower speed and higher speed service and that there is virtually no takers on the higher and lower speed. It was all pretty much in the middle, even though the lower speed services are priced lower. I'm not sure about that.
5222 MR. TAYLOR: One other comment on that is that what is a lower speed in terms of the lower broadband speed today, is going to be in the same category as dial-up is today, you know, a few years from now, which means basically the number of people who are going to want to take it are almost nil. So you won't be able to really run a business on that, or I mean not a significant business.
5223 COMMISSIONER PATRONE: All right. Last question.
5224 Do you think that it is feasible to consider that any future unbundling of next-generation fibre networks be contingent on complete regulatory symmetry, assuming you believe that that doesn't exist right now, between telco and cableco wholesale offerings?
5225 MR. TAYLOR: We are asking for complete regulatory symmetry so I wouldn't make it contingent upon it. I would think that to go forward together that you have the unbundling and that you would have that taking place with respect to both networks.
5226 Our basic argument, though, is that if you don't do that, if you don't have the unbundling to the full set of networks, your competitive market which has already collapsed, will disappear and you will basically have a duopoly because a few years from now if you can offer the higher speeds, your business proposition is pretty, pretty poor.
5227 So you need to do both. So I mean rather than hinging it -- and we wouldn't characterize it as hinging it --
5228 COMMISSIONER PATRONE: Can you have one without the other?
5229 MR. TAYLOR: Can you have --
5230 COMMISSIONER PATRONE: Should you have one without the other?
5231 MR. TAYLOR: Should you have one network being unbundled without the other?
5232 COMMISSIONER PATRONE: Without having -- we have heard the arguments that technical access to TPIA is different and more difficult. Does it make sense to have one without the other?
5233 MR. TAYLOR: From a policy point of view you want to have regulatory symmetry. You don't want to disadvantage one of the network operators unless there is an absolute overwhelming requirement. So you should have them both being done.
5234 But you should not hold up unbundling because of, say, the ILEC because of the cable, because in that time period you are going to kill off a fair number of the competitors. It needs to get going.
5235 MR. MERCIA: May I just have a quick word about that?
5236 COMMISSIONER PATRONE: Yes.
5237 MR. MERCIA: I think the issue of regulatory symmetry is a tough one and it depends on where you're coming from. In converged markets that we are talking about, the cable companies have more burden than the ILECs because they have to succumb to the BDU restrictions and broadcast obligations that they have.
5238 I think having one without the other if the Commission was to find that "Hey, listen, it's too complicated to do cable", that shouldn't be a reason to forbear ILECs because then you are giving competitors no options.
5239 The question here is access to the wholesale markets to create competition. So if you first find that access is warranted, we shouldn't be abandoning that completely, baby out with the bathwater, as one of the incumbents can't technically comply.
5240 MR. TAYLOR: If it comes down to a simple choice in a sentence, I think we will take competition over symmetry.
5241 COMMISSIONER PATRONE: Well, I asked because if you consider the argument that you are hobbling ILECs by unbundling those future networks, unless you have complete regulatory symmetry with TPIA, that in fact maybe you can't have one without the other in a market where you want those two to be entirely competitive.
5242 But I put that on the table for your consideration. Thank you for your comments.
5243 THE CHAIRPERSON: Okay. Thank you very much for your contributions.
5244 It has been a long day and we have two more days to go, so see you tomorrow. Bye.
--- Whereupon the hearing adjourned at 1654, to resume on Thursday, June 3, 2010 at 0900
Johanne Morin Jean Desaulniers
Sue Villeneuve Monique Mahoney
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